What I think about Insider Trading

Just today, I was alerted by the very useful SGX Mobile iPhone app that Sing Holdings (5IC) is likely to secure a land parcel for development from Urban Redevelopment Authority.

This wouldn't raise an eyebrow except that Sing Holdings recorded an extraordinary, unexplained increase of about 10 percent within a single day, with large volume.

There were no news released that day (at least officially), and this is probably attributed to some kind of insider trading.

I have already sold my shares in this company because I think I need to revise my idea of an asset play. Whether the market decided to act otherwise is not in my control nor my interest... I need to hold forth to my ideas stubbornly.

But I do have some views on insider trading.

Firstly, they are, definitely something we can do without, for it propagates the idea that in order to make a decent amount of money from the stock market, you need to have insider information. You can never eradicate insider trading with regulation...

Secondly, it takes some courage to act upon insider info. Let me explain.. for instance, an associate will advise me that company ABC is going to announce that they have secure a large project, and it is best to act upon it.

My first question will be: How big is this project? The second question will be: When will it happen?

It is also foolhardy to assume that the catalyst will happen within days. For instance, how would you felt if the price plunged by 1%, with a slightly larger than normal volume? Would you steadfastly held on? After all, technical analysis is about reading crowd emotion and by buying on insider information, you are influenced by a mere 1 person, how about more?


If a certain Mr Schloss could hide inside a small office, meet no management, and yet make plenty of money, why not?

And it falls...

After a couple of post about warning signs (as gleaned from William O'Neil's book about market topping off), the markets, without any warning, drop about 2.3-5 percent last night.

The book mentioned about market "stalling," which means neither having a clear up or down direction (in short, a doji), and increased volume over the previous day. This hints of institutional selling.

The market has already hit new heights since post-Brexit and investors should have taken care not to "pay a fair price for a good company," and insist on a good margin of safety.

Singtel

Singtel (SGX:Z74) shares declined to a price of 3.97 today, which somewhat brought attention to some investors. The man in the street might not know this but Singtel is the biggest company by market capitalization in Singapore. It is also generous with dividends.

I guess most investors are keen in Singtel for the dividends and not capital gains.

As you can see, Singtel's share price barely moves from 2009-2012 and then moves up another notch in 2013 and been such ever since.

That is the share price, let's take a look at earnings.
Year - Earnings Per Share (EPS) in cents
2016 - 24.26
2015 - 23.73
2014 - 22.87
2013 - 21.96
2012 - 24.97
2011 - 23.98
2010 - 24.46
2009 - 21.60
2008 - 24.76
2007 - 23.13
As you can see, EPS is largely the same over the last decade.

Singtel isn't the type of share that I will be interested in for a couple of good reasons
1) Largely no growth possibilities other than major M&A overseas.
2) No exciting new products.
3) A very large dividend payout ratio. It is paying out about 2.7 billion out of 3.8 billion of retained earnings in the last year. Below screen captured from Singtel's latest annual report...

 Out of 3.870B of earnings, it is paying out 2.789B, which translate to a 72% payout.

I think a growing dividend is not possible with this type of company... a growing dividend usually translate to a growing share price as well. If you are looking to acquire Singtel for dividends, it will be a better bet than Starhub, that is for sure, having a way better debt to equity ratio and lower dividend payout.