Singapore Airlines (SIA) shares have taken a massive beating in recent months.
Take a look at the decline for this year along after the pandemic hit.
While prices have declined, Temasek has after all backed the company.
They have pledging to take up any remaining shares and bonds that are not subscribed in the recent $15B bailout. More details below...
What happened to SIA and what is the bailout?
SIA has grounded 96% of it's fleet. No seat tickets to sell because we are all not travelling.
This meant that at this moment, there is little to no revenue.
However, they still have staff cost, airplane loans to pay etc... which caused them to post a $732m 4Q loss!
Which such a gloomy near term outlook, of course the share price suffered.
SIA needed cash to survive. That is why they recently did the SIA RIGHTS AND SIA Mandatory Convertible Bonds (MCB).
It was to bring in an initial $8.8B cash to the company to tide through this crisis.
If you are unsure on the various financial terms, click on the tutorial video below.
What is dollar cost averaging for investments and SIA?
You may have heard of this term "dollar cost averaging" (DCA).
It is when you use an investing plan to invest regularly. It can be monthly, quarterly or any other mode.
The idea is to space out your investment so that you avoid "timing" the market.
It's like slowly putting in bit by bit, rather than your whole sum all at once, just in case the share price goes down further.
If you'd like a full tutorial on the benefits and dynamics of Dollar cost averaging DCA, check it below!
To invest into SIA using dollar cost averaging, there are regular investing plans like OCBC BCIP.
You can buy a fixed few hundred each month instead of buying a lump sum few thousand dollars at one shot.
Why dollar cost averaging may not work to eliminate "Company risk"
When you invest into SIA (or any company share), you take on "COMPANY RISK".
This means that your investment return is directly related to the company's performance &/or the industry's outlook.
If SIA does well operationally, there is a possibility that the share price recovers. But if SIA continues to do poorly, the share price could even go down further. No one knows for sure.
Dollar cost averaging DOES NOT REMOVE "COMPANY RISK". If share prices go down further, buying more every month wouldn't help you get returns.
Hence, I am generally NOT in favour of dollar cost averaging into SIA (or any company share).
Dollar cost averaging helps in reducing "timing" risk.
It is best applied with funds and ETFs which are broad-based.
Summary
The best way to eliminate "company risk" is through diversification. Don't put your investment returns at risk to one company unless you are comfortable with the risk.
With funds and etf, you buy into many companies with a small sum of money.
Ask yourself what are your own investment goals before investing. Share investing requires the understanding of company risk unlike a portfolio of funds and etfs.
If in doubt, seek help from a qualified financial advisor. Someone who can help you use diversification to protect against "company risk", dollar cost averaging to protect against "timing risk" and properly asset allocate to suit your investment goals.