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I didn't know I could make money from blogging. However, I did discover quite quickly that there are many ways of making money through a blog, especially for a blog with a strong readership base. I found out that there are sites which actually charge a membership fee and there are some which charge a fee for subscription (and within the first month of my blog being set up, I actually received an email asking me how much do I charge for subscription and, a little bewildered, I told the writer that it's free).
The most common way to make money from a blog is through ad placements. For some time now, I've had ads in my blog. There are companies which would pay according to the number of impressions my blog generates. There are companies which would only pay if visitors actually click on the ads. There are companies which would only pay if visitors click on their ads AND actually buy something.
I checked my account with ZUJI recently and found that someone made a purchase and I have been credited with a small percentage as a commission. It works!
So, when you plan your future holidays, please click on the ZUJI advertisement banner in my blog's header and see what they have to offer. You get a good deal AND make a small monetary contribution towards my blogging efforts at the same time. Cool? Thanks for the support. :)
If you have been following my posts on Golden Agriculture in recent days, you would get an impression of how TA works for me. TA can never show us what will happen. It can only show what might happen and there will always be two possibilities in price movement, up or down, with varying probabilities. What we can see quite clearly would be things like supports, resistance and trend, amongst a few other things. TA informs on fair exit prices in the event that price goes up and in the event the price goes down, what are safer entry prices. If the uptrend is intact, buy at supports and wait to sell at resistance; if the price does not move up but moves back down to support, consider increasing exposure.
Using Golden Agriculture as a case study, let us do a recap:
In my post of 5 March, I mentioned that Golden Agriculture's price action formed a white hammer, closing at 54.5c, suggesting that a trend reversal is at hand. Initial resistance at 57c, followed by 59c. On 8 Mar, I mentioned that the white spinning top formed was unlikely to be a trend reversal signal because it did not take place after several consecutive days of upmove in price. On 9 Mar, yesterday, a doji was formed, another possible trend reversal signal and it was accompanied by a decline in the MFI. I suggested that if the malaise continued today, the counter might do a gap cover to 54.5c where it will have initial support and I would accumulate on weakness as the uptrend is intact with the rising 100dMA at 50.5c.
So, the strategy? Divest at resistance of 57c and 59c in case of an upmove. Accumulate on weakness in case of a move down to 54.5c and 50.5c as the uptrend is intact. Whichever direction the price moves, we have a plan. My overnight sell queue was done and I have partially divested at 59c this morning, retaining a smallish position in case the price continues to move up. This is a hedge, which is another one of my strategies.
For anyone who has been following my trading strategy so far, I hope you have made some good money. Remember, it is never wrong to take profit.
Rationale for partial divestment.
Golden Agriculture closed unchanged today on lower volume at 56c, forming a doji in the process. MFI has dipped below 50% which indicates a breakdown in positive buying momentum. If the malaise continues tomorrow, we might see the counter do a gap cover to 54.5c. This is very close to the rising 50dMA while the rising 20dMA is at 54c. If these supports break, strong support is provided by the rising 100dMA at 50.5c. Overall, the uptrend is intact and I would buy more on weakness.
Healthway Medical's EGM took place today to seek shareholders' approval on plans to expand in China. Shareholders' approval are also sought for the share placements to IFC and five substantial shareholders. Some were expecting this to give the counter a bit of a boost but that did not materialise today as the price hit 18.5c, the previous XR high before retreating to 17.5c, forming a graveston doji. Indeed, the bullish picture from yesterday did not follow through as the volume today was significantly reduced, suggesting a lack of strong buy ups.
As I mentioned in an earlier post, I've sold a third of my remaining investment in Healthway Medical at 17.5c and will sell more at 18.5c. Technically, if the counter does a pull back to 15.5c, which is where we find the rising 20d and 50d MAs, that might be a good entry price as the trend is still up.
This counter has run up from a recent low of 13.5c on 11 Feb to the high of 18.5c today. MFI shows how it went from being oversold to overbought in the same period. We should not be disappointed if it decides to take a break.
STI's movement today shows indecision as it started the day higher, see-sawed a bit and closed almost unchanged at 2839.54. What we can say for sure is that the 50dMA at 2810 provides initial support and the rising 100dMA at 2780 provides a stronger support. It remains to be seen if it could overcome the gap resistance at 2850. If it overcomes 2850, it is good news for the bulls.
I know many out there are turning cautious and even bearish but the higher lows and the higher highs on the MFI are encouraging. We see that in the OBV as well. Failing to move higher, the STI should not come crashing down either. Please see my earlier post on how the STI might behave in March: STI: Marching in place in March.
Turning defensive, I bought more units in AIMS-AMP Capital Industrial REIT today at 21c. Fundamentally, I like the numbers. Please see:AIMS-AMP Capital Industrial REIT. This is probably the best value for money industrial property REIT in Singapore right now. Increasing the weightage of this REIT in my portfolio diversifies away from an emphasis I've had on Saizen REIT in recent months.
Technically, the price looks like it has bottomed at 20.5c and has begun to move up. The MACD did a bullish crossover with the signal line and the stochastics has started to move up from the oversold region. 21.5c is the resistance provided by the flat 50dMA. It might take a while for the counter to move up in price but the limited downside makes it technically attractive to increase my investment here.
Crude palm oil (CPO) closed up 1.46% today or RM39 to close at RM2,709 (US$811). The outlook is bullish and CPO's price might push higher yet. As mentioned in my previous post on Golden Agriculture, this is good news indeed for the company.
Golden Agriculture did a bullish gap up today, closing at 56c, forming a white spinning top. Indecision? Seeing how the spinning top did not take place after at least several consecutive days of upmove in price (because at least several days in one direction is required to qualify price movement as a trend), it is unlikely to be a trend reversal signal.
The buy signal seen in the MACD is confirmed today. 50% on the MFI has lived up to expectations and acted as a support, preventing the index from declining which would have signalled negative buying momentum. All in all, chances of Golden Agriculture's price pushing higher seems good. In the event that 57c is taken out, 59c (138.2% Fibo resistance) would be the resistance to watch. Support remains at 50c, a many times tested candlestick support and resistance level which coincides with the rising 100dMA.
Healthway Medical's target price was revised upwards by DMG & Partners to 26c from 21c after being reduced from 28c not too long ago. Target price is raised this time "taking into account the potential growth that the new clinics can generate, despite an enlarged share base." Why didn't they take this into account the last time when the target price was reduced to 21c (the reason given for the lower target price being the dilution from an enlarged share base then)? It went on to say that "Healthway can potentially open another 30 medical centres in China....This would fuel earnings growth going forward."
Let's look at the charts today. Price moved to touch a high of 18c after breaking a stubborn resistance level at 17c, forming a white spinning top in the process. Spinning tops usually signify indecision and are generally treated by chartists as possible reversal signals. The MFI has moved into overbought territory while 18c happens to be the 138.2% Fibo resistance as well. However, the expansion in volume today, as price pushed upwards, is impressive and is more than three times the volume of the last session. This suggests that the price might push higher yet. If this happens, the XR high of 18.5c will be tested next.
I have sold a third of my remaining position in Healthway Medical today at 17.5c which I've identified as the XR equivalent of 19.5c CR. This is also fundamentally trading at 10% higher than the fair value I've ascribed to Healthway Medical's shares, which is 16c. I will sell more if its price moves to retest 18.5c. Beyond 18.5c, the ultimate bullish target I have is 21.5c which is the XR equivalent of 24c CR I arrived at a couple of months ago. At 21.5c, I would divest almost all of my investment in the company. I would have hit my targetted investment returns then.
I maintain that buying into Healthway Medical at prices higher than 16c now is a bet on a very strong improvement in future earnings, strong enough to recover all the EPS lost in dilution and more. It has to be more or else, Healthway Medical's fair value would stagnate. I would prefer to be cautious in the midst of too many potentials, especially when mostly positive potentials have been emphasised.
Healthway Medical: An updated valuation.
Personally, I don't have a very strong stand for or against gambling. However, from the standpoint of money management, anything that might cripple our finances should be avoided. At face value, rationally, since the chances of losing money is much higher compared to making it, gambling should be avoided like the plague (or H1N1, in today's context).
Ng was addicted to gambling and lost a fortune. He approached Chow Yun Fatt, a Hong Kong superstar who has gone international, a very good friend, and asked for a loan but was turned down. Initially, Ng was very angry with Chow but later on he became grateful as he worked hard to pay off his debts. Ng said that if Chow had helped him to pay off his debts, he would never learn and be rid of his addiction to gambling.
Many, if not all, of us must have a story or two to tell about the misfortune that gambling has brought to people we know directly or indirectly. However, we have also heard stories of people getting really rich through gambling, haven't we? I remember reading in the papers how, over the years, in some months, the Singapore Sweep's top prize (which is S$2.2m today) was won by foreign workers who went back to their home country, bought land, became landlords, got married and lived happily ever after. OK, the last bit is just my imagination.
So, what am I trying to say? Well, I don't think gambling is totally bad. It is not one of those things which is clear cut like a hit and run (which is what Dr Silviu Ionescu, the Romanian diplomat, is suspected of doing here in Singapore), rape, robbery or murder. These are just plain evil. Gambling is more of a grey area.
From a money management standpoint once more, if we budget a small sum of money for entertainment and classify gambling as one form of entertainment, as long as we stay within what is budgeted, gambling would not become financially crippling and it might even be rewarding. The Chinese people have a saying, "mai ge xi wang", or "buying a hope". This, I feel, is not a bad thing.
If you are a regular reader of my blog, you could probably tell that I'm a pragmatist, not an idealist. Everyone has his or her own believes and values. Gambling is one of those issues that will always attract strong opinions. That is why I thought about it for a long time before deciding to blog about it. I hope I won't be flamed for my ideas.
Flipping through the latest issue of The EDGE, I found a full page write up on China Hongxing. It is rather negative with a title like "China Hongxing unveils plan for cash pile, but analysts fear it is coming too late".
"China Hongxing's fast growing cash pile has been a source of consternation for investors for more than a year. Some were irked by the company's apparent refusal to invest the money or return it to investors... Some were even concerned whether it actually had the cash reflected in its accounts."
Analysts are downgrading the prospects of the company en masse despite the company reporting a net cash position of 22c per share. The share price closed at 14c on 5 March. CIMB-GK and Kim Eng Securities even ceased coverage of the company altogether.
I decided to take a look at China Hongxing's charts. Looking at the MACD, it is in negative territory, pulling away downwards from the signal line. The MFI has dipped into the oversold region and formed a lower high, signalling negative buying momentum.
I have drawn the downtrend channel for China Hongxing in light green. 14c is currently at the channel support. However, if this breaks, the next support is at 12c and a stronger one is at 10c. Any upmove from 14c is likely to be just a rebound from oversold conditions and would meet with resistance at 16c, thereabouts, which is provided by the descending 20dMA. If, in the unlikely event that the 20dMA is taken out, very strong resistance is provided by a confluence of the 50d, 100d and 200d MAs, which are at 19c, thereabouts.
Despite a return of positive momentum, Healthway Medical was unable to overcome the initial resistance of 17c which was identified in my post two days ago. Instead it closed at 16.5c today, forming a gravestone doji in the process. This is ominous. Also of note is that the repeated attempts to overcome resistance is not accompanied by any meaningful increase in volume. The upmove might just falter unless we have an expansion of volume with the next push up. Finally, the MFI is fast approaching the overbought region and bears watching.
Golden Agriculture's price action formed a white hammer today and closed at 54.5c. This suggests that a trend reversal is at hand. This is coupled by a buy signal on the MACD. MFI has hit 50% which has acted as support on two other occassions in the recent past. An upmove in price would meet with initial resistance at 57c, followed by 59c.
Fundamentally, the price of crude oil has been on the rise (currently US$81.93 per barrel) and crude palm oil has risen in tandem, closing at RM2,670 today. This bodes well for Golden Agriculture.
It might still be early days but the signs are promising. We will need confirmation next week on whether Saizen REIT's price will continue its positive movement. Good luck to fellow unitholders.
The MFI and Stochastics are still in oversold regions and seem to suggest that if a reversal does happen, it is not unexpected. We might want to remember that in a bearish scenario, MFI and Stochastics can stay oversold for a very long time. MFI and Stochastics are also more accurate indicators in a trendless situation.
"Genting SP continues to weaken as expected. The highest it got to this week was 98c to give stale bulls a chance to reduce exposure. Closing at 91c today hugs the lower limits of the Bollinger bands. The downtrend seems ready to continue as the MFI continues to decline indicating reducing buying momentum. In the unlikely even that the price moves up in the next session, resistance is at 98c.
"Looking at the weekly chart, we see a precarious situation. Price is hugging the lower limits of the Bollinger bands and the MFI continues to decline just like in the daily chart. However, what is important is that it has closed below the rising 50wMA which is at 92.5c. If price is unable to recapture this support level to close at or above 92.5c in the next session, which is the last trading day of the week, the chart would look very ugly. The ultimate downside target would be 74c, a support level provided by the rising 100wMA. Although there would be intial support at 80c, such a potentially huge fall in price would be too tempting for short sellers to ignore."
Today, Genting SP continued its downward slide, closing at 84.5c. Momentum oscillators such as the MFI and Stochastics show that the counter is oversold. The MACD plunges deeper into negative territory. Longer term MAs are descending with the exception of the 200dMA which now acts as resistance in the event of any rebound. This is at 98.5c.
The MFI on the weekly chart is not oversold yet while the MACD is on the verge of plunging below zero. On a weekly basis, there is a strong suggestion of more downside as well. Trying to make some money from this counter by punting on the long side is going to require a lot of courage and luck at this juncture. Having said this, the downside would probably be reaching an inflection point in the near future.
The proximity of the rising 100wMA and the 200wMA to each other would provide a very strong support at 74c and 70c, respectively. For investors who really like this counter for some reason, they could consider accumulating then, especially if the MFI and Stochastics indicate heavily oversold conditions by then.
Today, I received a payment voucher from my broker on income distribution from First REIT. This is not a very glamorous REIT but I count it as one of the strongest in my portfolio. The generous distribution put a smile on my face.
Then, I wondered if I should blog about First REIT, using it as an example of the type of REIT we want to have in our passive income portfolio. I got home, checked my blog and found two comments from anonymous readers, both stating that they do not like REITs. So, that made up my mind for me.
I first bought some units in First REIT in 2007 for an average price of 75c per unit. Through good and bad years, it faithfully distributed income to unitholders every quarter:
In the first year, it distributed 7c per unit for a yield of 9.33%.
In the second year, it distributed 7.62c per unit for a yield of 10.16%.
In the third year, 2009, it distributed 7.44c per unit for a yield of 9.92%.
Throughout the years, First REIT did not have to raise funds from unitholders as its gearing remained conservative at slightly more than 15%. The management did not act irresponsibly, expanding recklessly during times when credit was easily available. Its NAV today is about 98c per unit. It is still trading at a discount to NAV although, at today's closing price of 82.5c, not excessively so. At the current price, the yield (assuming a distribution of 7.5c per annum) is still a respectable 9%.
You might remember that I said I bought more units of First REIT at 42c during this last crisis. I have received the full distribution of 7.44c per unit for the year 2009. This translates into a yield of 17.7% (this plus a capital appreciation of almost 100%)! In five and a half years, I would have recovered my capital (everything remaining equal). This one is for keeps.
First REIT, I believe, is a powerful example of what makes a good investment in REITs for the purpose of passive income generation. Let us leave out the units I bought at 42c as that happened under extraordinary circumstances and is unlikely to be repeated. Considering just the units I purchased at 75c, it is more than likely that I would continue to receive 10% yield per annum.
Human beings like to classify things, organising things into groups. This is not a bad thing in itself but having a system of classification helps us to think more readily in general terms, making quick generalisations in the process. This encourages economy and masks differences, differences which could potentially separate the gems from the trash. So, next time, if you see what seems to be a heap of trash and think of passing it by, think again.
High yields: Successes, failures and the in betweens.
Seven steps to creating passive income from the stock market.
High yield portfolio.
Healthway Medical touched 17c, the initial resistance identified yesterday with the MACD indicating a return of positive momentum. However, that the price closed unchanged despite increased trading volume indicates that many holders are making use of the upmove to lighten their positions. A rising MFI shows increasing buying momentum and this is some way from being overbought, suggesting that there might be more upside. 17c is still the resistance to watch. 17.5c is the XR eventual target, the equivalent of the CR eventual taget of 19.5c.
Golden Agriculture closed at 53c, supported by the 20dMA. This pullback is on the back of lower volume, suggesting that the decline is due to weaker holders being shaken out and not due to any drastic distribution activity. However, with the MACD forming a bearish crossover with the signal line and the Stochastics continuing its decline, we might see the 100dMA being called upon to act as support yet. I would accumulate then.
Saizen REIT formed a rare white candle today as price closed at 16.5c with a relatively surprising large buy up in the last trade of the day. The rising 20dMA and 50dMA have merged to form support at 16c, suggesting that this is probably a very strong floor for the counter. MFI has formed a higher low, marking sustained positive buying momentum. MACD marks a return to positive momentum and the Stochastics has turned up as well. Is this the beginning of something more interesting for believers of Saizen REIT or is it another red herring? Time will tell but my investment in Saizen REIT is informed by my FA and I am holding with conviction.
Initial resistance is at 17c, a recent candlestick support turned resistance. Ultimate resistance for the week is provided by the descending 100wMA at 19.5c.
Golden Agriculture drifts downwards as price moves sideways, supported by the 20dMA. Low volume is observed with a slight declining bias. So, there is a chance of the 20dMA support breaking which would see the rising 100dMA providing support at 50c. I would buy more, closer to the 100dMA. I would also pay attention to the MFI and Stochastics. If these are in the oversold territories then, I would buy even more.
Healthway Medical closed at 16c today on low volume. This is the highest closing price in a month or so. MACD has crossed above zero, marking the return of positive momentum. The MFI has crossed 50% and is rising. This indicates positive buying momentum. OBV rises ever so slightly, indicating accumulation. The trading volume has to expand to make any upward movement in price sustainable.
In the near term, any upward movement in price should meet with initial resistance at 17c, followed by 17.5c.
Genting SP experienced a white candle day on lower volume. The MACD is still declining and being below zero, the positive momentum is well and truly over. MFI has dipped into oversold territory although the stochastics look like it might rise somewhat in the oversold region. With the momentum oscillators in oversold territory, the counter might attempt a rebound but any rebound should meet with resistance at 98.5c, which is where we find the 200dMA in the daily chart.
Over the week, we should find resistance at 93.5c, this is where we find the 50wMA on the weekly chart.
So, on a daily basis, there is a probability that it might hit 98.5c but over the week, 93.5c would probably assert itself as a stronger resistance. Therefore, expectation is that any upmove to 98.5c, if it happens, would be short lived and would see much selling both by stale bulls and short sellers.
An upmove this week is most probably not a chance to load up as the downtrend is clear unless the upmove is accompanied by higher volumes which might indicate a budding reversal which remains unlikely.
High yielding trusts which have done very well for me are those which meet the selection criteria I have talked about so many times before for REITs. Investing in such trusts is mainly about generating a steady passive income (cash flow) and to do this well, we have to look for low gearing, high yield and attractive discount to NAVs. These factors will ensure that the trusts' distributions are meaningful and sustainable. Here are some which have done well for me:
First REIT: I first bought some in 2007. It had low gearing, high yield but did not have a great discount to NAV. My initial purchase price was in the mid 70c. The dpu was about 6c per annum. As prices slumped during this last crisis, I bough more at 42c. The dpu has risen to almost 8c per annum in the meantime. First REIT didn't have to issue any rights or do any share placements as its gearing was relatively low and still is. The unit price of the REIT now is 82c thereabouts.
LMIR: I first bought some in 2007, not during the IPO at 80c, but after the price dropped to 70c days after. It had low gearing, an attractive yield and trading at a discount to NAV. During the last crisis, I bought more and the lowest price I bought more at was 18c. The dpu is now almost 5c per annum. It didn't have to issue any rights or do any share placements as its gearing was very low and still is. The current unit price is about 48c or so.
Suntec REIT: I always wanted some Suntec REIT units but looked on in amazement as the price hit $2.00 at one stage. I bought some at $1.03 during the downtrend. It went on in the coming months to make a new low at 50c or so, if I remember correctly. As the price recovered, I bought more at an average price of $1.00 or so. NAV per unit was almost $2.00. So, the discount to NAV was very attractive. The dpu is about 10c and provides a handsome 10% yield for me. Gearing level is not very low though.
Hyflux Water Trust: A business trust, not a REIT. This is an investment which many of my friends remember because I was talking about it a lot early last year. They listened politely mostly. I was always interested in this trust as it has regular cash flow through its exposure to the water sector in China. In January 2009, I looked at it again in greater detail as the price was so low. I found the yield to be almost 20% then. Gearing was non-existent and it was trading at a very nice discount to NAV. The unit price was 30c or so at that time. I went on a buying spree.
I did not keep all of these investments bought at low prices. I sold most of them for very nice capital gains, cycling the funds into laggard counters like Healthway Medical to make more money. I kept, on average, 10% of my original positions in each of these investments to collect passive income in perpetuity. It would have been nice if I had been able to keep my investments in these trusts in full and yet have more money to invest in laggard counters but, unfortunately, my resources are limited.
As you could probably tell, I was not always rigorous in making sure that all three criteria I talked about were met in choosing a trust. In part, such trusts did not present themselves all the time and I had to make do with the best choices available. This last crisis, however, was an opportunity of a lifetime.
It was also because I was not rigorous that in my early years with trusts, I made many mistakes in my choices. What we must always remember is not to focus solely on yields. Also, do not invest in anything without doing our own FA. Here were some of my mistakes:
MPSF: It just got suspended today. This must have been my worst mistake. I listened to a very young "analyst" who said it gave upwards of 10% in yield and that the yield was sustainable. I invested a five figure sum without doing any analysis of my own. I later found out that MPSF invests in other REITs in Australia and as some of these REITs are private in nature, they could gear up to 80%! MSPF froze all distributions with the credit crisis but what is worse is the complicated situation it is in with so many cans of worms. There is no passive income for unitholders and, as far as I can see, there is no clarity as to its future. Must remember not to be swayed by sweet talking analysts. Always do our own homework.
FSL Trust: A friend introduced me to shipping trusts saying that I should diversify my passive income stream. He also introduced me to Rickmers and PST but I only have a position in FSL Trust. I still get passive income from the cash flow generated by its business and I receive >8% yield per year based on my average price. High gearing in excess of 100% and the fact that its assets depreciate whether or not the economy does well make this a mistake for me.
CitySpring: This is a business trust. I was emboldened by the fact that this has the backing of Temasek Holdings. It had very high gearing but the management (headed by Sunny Verghese) said that they did not have to issue rights and people who thought they had to didn't understand their business. A few months later, they issued rights. The yield plunged and unitholders became poorer as they subscribed to the rights. It yields an average of 6.5% per annum for me.
There are a few others but the essence of the negative experience is more or less the same. For examples, with FCOT (previously Allco REIT) and MI-REIT (now AMPS AMP Capital Industrial REIT), I overlooked their high gearing levels at the time of purchase. This is also a reason why I tell people to be cautious with Cambridge Industrial Trust (CIT) which I am vested in as well as its gearing is still in excess of 40%.
As creating a significant stream of passive income is still a very important objective for me, trusts with high yields must still play a part in the grand scheme of things. Rather than remember the pain and avoid these trusts altogether, I choose to remember the pain and find a way to achieve mastery over them. I hope that by freely sharing what I have realised to be the right way to approach REITs (and other forms of trusts) here in my blog, other investors who might not be in the know would not have to suffer like I did.
As I flipped through the book, I was actually thinking of buying it until I reached a section which made me put it back on the shelf.
Robert says that most people are lacking in financial education or do not have the right financial education. Having the right financial education gives people an unfair advantage. That, I agree.
Robert went on to say that there are many ways to build passive income, which is true. He went on to say that running businesses (and by that he meant big businesses with hundreds of employees) to generate passive income requires the greatest financial intelligence. This is followed by investments in real estate but as most people do not have a high level of financial intelligence, they opt to invest in real estate mutual funds known as REITs. This is followed by paper investments such as stocks, mutual funds and the likes as paper investments require the least amount of financial intelligence.
Now, I will not discuss his choice of words (stylistics) here although that particular section was somewhat disturbing as I sensed snobbery in the writing. Maybe, I am too sensitive. So, I shall just discuss his contention that since most people do not have a high level of financial intelligence, they opt to invest in real estate mutual funds known as REITs instead of actual real estate.
Personally, I think investing in real estate is a good way to build our wealth if we know how to. I have been very open about it in my blog and I have shared my experience. Definitely, collecting rent is another way to build passive income. However, I also enjoy investing in REITs. Not all REITs, mind you, but REITs which meet certain criteria: low gearing, high yields and trading at an attractive discount to NAV.
Now, let's go through these three criteria one by one:
When we invest in a piece of real estate, we put down 20% of our own money and borrow the rest. The idea is to make sure that we borrow at a low rate of interest and let the rental income cover the monthly repayment of the loan and still have money leftover. We are talking about a gearing level of 0.8x here in such a case.
REITs would probably have borrowings but for listed REITs and in the current environment, it is hard to find a REIT with a gearing level higher than 0.4x (well, CIT is an exception).
Robert talks about good debts and bad debts. This is something many of us are familiar with but most would agree that less debt is rarely a bad thing. Many, in fact, work towards reducing debt in their lives.
If we decide to buy a condominium, for example, what kind of yield could we expect? Let's say it is a $1m studio apartment somewhere near town, the yield is probably something close to 3.5% per annum. Not fantastic and even in a low interest rate environment, the returns would not be attractive.
Now, if we look at some of the REITs available in the stock market here in Singapore, there are some REITs with yields of 10% or so. Attractive? You bet.
DISCOUNT TO NAV
When we buy a piece of real estate, we are usually buying it at valuation or above valuation (just look at the COVs being asked for HDB flats!) and during bad times, we might just get a bargain at below valuation.
With REITs, we have an opportunity to own real estate at a discount to their NAVs in most cases. We do have a few REITs which are trading at or above their NAVs (and I don't invest in those). I like to ask my friends, if a nice condominium in a good location is valued at $2.9m and is now being sold to you for $1.6m, would you buy it? The answer is always a unanimous "YES!". It's a no brainer.
Perhaps, the book is meant for an American audience but I do not know how Robert arrived at the conclusion that people with lower financial intelligence invest in REITs instead of actual real estate. For me, it's just a simple case of value for money. I invest in the REITs that I do today simply because they provide extraordinary value for money.
TA is not about predicting price movements. TA always presents two possible scenarios. To most people, this immediately means it's as good as not saying anything. Well, if we had a tool that could tell us if a security was definitely moving up or down, ..............; you fill in the blanks.
Then, why do we still have TA? Well, knowing the trends, supports and resistance levels could help us make certain decisions when certain numbers are hit. Is that it? I am probably not doing the subject justice but for my purpose, in a nutshell, yes.
OK, on to what you are waiting for. What do I see in STI's charts?
On the daily chart, we see that the MFI is clearly downtrending with lower highs and lower lows. The stochastics is turning down from the boundary of the overbought region. These are momentum oscillators and their current patterns indicate weakening buying momentum in the near term.
That the STI re-entered its uptrending channel is quite obvious and it is currently supported by the upturning 20dMA. This is a positive. That the rising 100dMA was taken out a few sessions ago suggests that this is not a strong resistance. Instead, the resistance to watch would be the 50dMA which is still descending, albeit gently, and is at 2,813. Immediate support is at 2,737. In case of a breakdown, a stronger support is provided by the rising 200dMA at 2,615.
If we look at the weekly chart which presents a longer term picture, we see the stochastics upturning. This is quite different from what we get in the daily chart. What does this mean? To me, it means that the probability of a large downward movement in the index is low over the longer term. The STI has weakened but is showing resilience and is more likely to move sideways for a while than to decline dramatically.
The bearish divergence observed between index value and volume up to two months ago was corrected as the index retreated for three consecutive weeks accompanied by increased volume. Subsequent black candle weeks were on lower volumes. This supports the view that the STI is less likely to decline dramatically.
Remember, technical analysis provides probabilities and not certainties. Good luck to us all in the month of March.
As if to support my observations, a friend called me out for lunch as I was blogging this. Over lunch, I asked if he would be having dinner with his family tonight and he went, "Huh?". Well, maybe not this exact word but you get the idea. Over lunch, we also talked about time as a form of capital and how when we spend time doing something, it is actually an investment and we must make sure we invest our time wisely because, unlike money, this is a form of capital that we cannot make more of. We will always have less and less remaining time on Earth as we grow older.
Suddenly, I feel philosophical. Life is so very short. We have only a few decades on Earth. Well, there are people who live to a hundred but I don't know if that is a blessing or a curse. Do we really mean it when we wish our elders "Chang Ming Bai Shui" (Long life and hundred years old) or is it just plain courtesy? I mean if we live to a hundred and have the good health of someone, say, half the age, good, but what is the probability?
Frankly, I don't want to live to be a hundred years old. I don't want to be full of ailments and be a burden to others. When my time comes, I will go. So, what am I trying to say? We should cherish our loved ones because the time we have on Earth is limited.
I remember this from my primary school days (I went to a mission school):
"We often love things and use people when we should be using things and loving people." Overly idealistic? Maybe but you get the gist of it.
Humans have short memories and need constant reminders. This is especially true for people living in this modern world with all its distractions. These distract us from what is really important in life.
When asking myself why am I trying to secure a significant passive income stream in my investments, the answer is quite clear and that is so I do not have to spend so much time at work or any time at work at all and, instead, I would be able to spend more quality time with my family. In our pursuit of financial well-being, we should not lose sight of the most important people in life, our loved ones. I am looking forward to dinner tonight.
Happy Chap Gor Mei! (Hokkien for "Happy 15th evening!")
Well, to me, it's quite simple, if I invest $500k in a basket of stocks that yields 10% per annum, I would have that $50k passive income. Then, I gave it some thought later on and decided that perhaps I should share more in detail how this could be achieved.
Taking a leaf from successful authors using the number "seven", this is AK71's "Seven steps to creating passive income from the stock market":
1. Get full time employment - Sounds dreadfully straightforward, doesn't it? Well, sometimes we need to point out the obvious. We cannot grow money in pots of soil or fabricate it at home; well, not legally anyway. Get a well paying job that pays you as much as you are worth (or more than you are worth if you are lucky enough). Don't shortchange yourself.
2. Be frugal - Again, this sounds straightforward enough but it is something that many people find hard to do. Instant gratification is so common in our modern world, isn't it? I want something and I want it NOW! It is quite well known that George Soros takes the subway to work and that the founder of IKEA is still driving the same Volvo he bought more than 20 years ago! I blogged about this recently.
Money management: Needs and wants.
3. Save as much as you can. OK, I'm cheating here. This is really a combination of points 1 and 2. Make as much as you can in your full time job and spend as little as you can. The difference: savings. This is your initial capital to realise your dream of passive income from the stock market. Also, remember, money in your CPF-OA is savings and a percentage could be used to invest in the stock market too. Start a SRS account and use the money to invest in the stock market at the right time.
Things Singaporean: SRS, CPF-OA and CPF-SA.
4. Fundamental Analysis (FA): go learn FA if you have not done so already. This is very important in the identification of good companies in your quest to build a passive income stream from the stock market. This cannot be emphasised enough. Look for companies with high yields but ensure that they have a strong balance sheet and good cash flow. Do not look at the income statement only. Otherwise, it might come back to haunt you.
Fundamental analysis: The income statement.
Fundamental analysis: Balance sheet.
Fundamental analysis: The cash flow statement.
5. Technical Analysis (TA): go learn TA if you have not done so already. If FA tells you a company has a fair value of $1 and the price is now 80c, is this good enough to buy? Well, if the company's share price is going through a downtrend, no. Cheap might get cheaper. That's what TA can do for you: it shows you the trend, resistance and support levels. FA cannot do that. Market sentiments do not care two hoots what is the fundamental value of a company and you will do well to remember this.
Thoughts on methodology.
6. Invest in the good companies you have identified and monitor them constantly. There are quarterly and annual reports to analyse. Use FA to ensure that they are still doing well and likely to continue doing well in future. Use TA to check on the longer term trends.
Identifying trends and value: FA and TA.
Risks and rewards: TA and FA.
Monitoring our stocks.
7. Reap the rewards of your investments and collect the dividends. Yes, finally, we get to the fun part! You can decide if you want to use the dividends to reward yourself or if you want to add to your pool of savings to be re-invested. Of course, if you want to achieve a higher passive income within a shorter period of time, re-investing is the answer. Just employ FA and TA again to do this.
In the meantime, if you did not get retrenched (knock on wood), ensuring that you continue to save as much of your earnings as you can from your full time job will continue to grow your pool of savings even as dividends received from your investments pour in. Year after year, your annual income increases through greater contributions from the passive income received through your well thought out investments (everything else being equal). Sounds really good, doesn't it?
It is definitely possible to create a significant passive income stream from investing in the stock market. Like so many things in life, there is just no short cut though. So, if this is your dream just like it is mine, get cracking. Good luck. Yes, you will need some of this too.
Finally, remember, if you find some good companies out there which the analysts haven't discovered yet, come back here and share with us. This is most important.
Stock market analysts.
Recommended books for FA and TA.
"Environmental non-governmental organisations and parliamentarians in the EU and US allege that the new demand for palm oil in their newly developed biofuel industry will lead to deforestation in Malaysia and Indonesia to accommodate the expanding cultivation of oil palm. The alleged conversion of forests is then linked to habitat loss, biodiversity and now global warming. " By Yusof Basiron, 24 Feb 2007, New Straits Times.
The Malaysians have launched very convincing counter arguments to the contrary. Here, I would like to share a short video clip found on YouTube:
There is some truth to the claims that Western developed economies seem to be practising double standards in their criticisms of oil palm plantations. Some figures shown in this next video clip are quite telling:
The developing world has the right to economic growth, growth which the Western developed economies enjoyed at the expense of the developing world in the past. If they want the developing world to cut down on what they call environmentally detrimental practices, they should make appropriate contributions. To me, this seems to be the decent thing to do.
Golden Agriculture failed to move higher today and closed at 54c. It formed a bearish black candle and with stochastics closer to the overbought region, it doesn't look promising. On the brighter side, although it has closed lower, it is still above the rising 50dMA. The 20dMA is turning up. MFI has formed a higher low and the next session will see if it could continue to do so. I continue to see resistance at 59c and strong support at 50c.
AusGroup too formed a black candle as it closed at 58c, supported by the 20dMA. This is on the back of significantly lower volume. With the MFI forming a higher high, there might be some momentum left in the upmove. For stale bulls who missed out on reducing their exposure here in the last couple of sessions, there might still be a chance to do so yet. Strong resistance is at 63c.
Genting SP continues to weaken as expected. The highest it got to this week was 98c to give stale bulls a chance to reduce exposure. Closing at 91c today hugs the lower limits of the Bollinger bands. The downtrend seems ready to continue as the MFI continues to decline indicating reducing buying momentum. In the unlikely even that the price moves up in the next session, resistance is at 98c.
Looking at the weekly chart, we see a precarious situation. Price is hugging the lower limits of the Bollinger bands and the MFI continues to decline just like in the daily chart. However, what is important is that it has closed below the rising 50wMA which is at 92.5c. If price is unable to recapture this support level to close at or above 92.5c in the next session, which is the last trading day of the week, the chart would look very ugly. The ultimate downside target would be 74c, a support level provided by the rising 100wMA. Although there would be intial support at 80c, such a potentially huge fall in price would be too tempting for short sellers to ignore.
Its balance sheet is very strong with low gearing. Nett debt to equity ratio at the end of 2009 was 0.06x and nett debt to total assets ratio for the same period was 0.04x. Total equity attributable to equity holders was up 18% to US$5,438m.
A dividend of 0.495c per share has been declared.
Golden Agriculture remains the least expensive of all CPO counters listed in Singapore. It is also the most levered to the price of CPO and with expectations for the price of CPO to continue appreciating over the next two years, Golden Agriculture is likely to do better as well.
The following is taken from the presentation:
Optimistic Outlook for 2010
• Resilient growth in edible oil demand, especially for palm oil
Growing popularity as edible oil in developed and emerging markets
Increasing demand for substitute and alternative uses such as oleochemicals and biodiesel
• The Company is benefiting from the solid industry outlook
Sustained and best-in-class leadership in plantation growth
Actively exploring acquisition opportunities in upstream and downstream
Solid financial position with low gearing and strong cash flows
For the full presentation, please visit:
Golden Agriculture: Year ended 31 Dec 2009
On Monday, 22 Feb, I said that "AusGroup closed at 57c today on low volume. This is the second black candle day in a row experienced by AusGroup on low volume while the two preceding white candle days happened with relatively higher volume. This is a positive. The MFI has formed a higher low while the MACD continues to pull higher away from the signal line after forming a bullish crossover three sessions ago. Any continuing attempt to move higher will have to overcome resistance provided by a declining 20dMA which is at 59c today."
Healthway Medical: Growing a defensive business.
Healthway Medical's growing in china.
Healthway Medical: A seven months journey.
In order to expand in China, Healthway Medical issued rights (1 for 5) at 7.5c to existing shareholders. This, I like. It allowed all shareholders to participate in the enlarged capital base of the company. Coverage by DMG with a target price of 28c sent the share price soaring soon after. Although I believed that Healthway Medical's valuation was inexpensive at 13c then when compared to peers such as Raffles Medical Group (RMG) and Parkway (and if we compared it to Q&M Dental, it was dirt cheap), seeing the price moving rapidly from 13c to hit 19.5c in a very short period was just unbelievable.
Fundamentally, at the CR price of 19.5c, it had similar valuations as RMG at that point in time. Technically, 19.5c was an eventual target provided by the chart pattern then. I divested as its price hit various levels of resistance on the way up and was 80% divested by the time it retreated a cent from 19.5c.
Healthway Medical - Rising too quickly?
Healthway Medical: A beautiful symmetry.
Rationale for partial divestment.
The CR target price of 19.5c translates to a XR target price of 17.5c. A CR target price beyond 19.5c was 24c and the XR target price beyond 17.5c is 21.5c. DMG later lowered their target price from 28c to 21c to take into consideration the dilution resulting from the rights issue as well as a share placement that would be taking place. The proposed share placement is good and bad and I have blogged about it before.
Healthway Medical: XR.
Healthway Medical: Share placement.
Today, I received a circular from Healthway Medical for an EGM on 9 March 2010. The following resolutions are being put up for a vote by shareholders:
1. The Proposed China Expansion Plans.
2. The Proposed IFC Placement.
3. The Proposed Placement.
Healthway Medical's management is being very forthright with all the risks which it might face in its proposed plans to expand in China. In total, there are 11 risks listed. Not great bedtime reading, for sure. This is why I have mentioned before that the plan is good and all we have to worry about is its execution. We can only hope that the management is up to the tasks at hand and that they have a measure of good luck on their side as well since, realistically, we cannot expect the entire process to be without hiccups. However, the management's strong track record in Singapore is re-assuring and we hope for the best.
That a member of the World Bank Group, International Finance Corporation (IFC), is going to take up 108,000,000 placement shares at 13c per share is a positive. IFC is going to be a long term partner and its track record of more than 50 years in creating opportunities and improving lives in emerging markets will raise the corporate profile of Healthway Medical. IFC will also extend a term loan of US$15m for a period of 10 years as a substantial shareholder of Healthway Medical.
A share placement at 13c per share is also being offered to two controlling shareholders and three substantial shareholders of Healthway Medical. This is to ensure that their aggregate interest in the company remains substantially unchanged at 44.6% and it also demonstrates the five shareholders' confidence in the growth prospects and plans of the company.
Healthway Medical's star is shining bright but the risks which are inherent in their ambitious plans to expand aggressively in China cannot be ignored. The journey will be a long one and fraught with obstacles. Shareholders will have to believe in the management and their vision. Having said this, shareholders will also have to keep an eye on the progress that is being made and adjust their expectations accordingly.
Investing in a company with confidence and holding with conviction is not the same as blind faith. Periodic reviews are still necessary. This brings me to the most important part of this post:
Number of shares:
As at 30 Sep 2009: 1,384,752,983
Upon completion of Rights Issue: 1,647,665,980
Upon completion of Proposed IFC Placement: 1,755,665,980
Upon completion of the Proposed Placement: 1,841,539,384
The much enlarged share capital of Healthway Medical is something shareholders and would be investors should bear in mind. Buying Healthway Medical's shares today at 13c is different from buying it at 13c in December last year which was the last time I bought some before it issued rights. Buying it at 13c now is closer to buying at 14.5c in December. So? It means that Healthway Medical's shares are not as cheap as before.
EPS would be about 20% lower and PE is less attractive. Fundamentally, at 16c, its PE would be 20x once all the proposed share placements are approved and effected. This valuation is similar to RMG and I would, therefore, consider 16c per share as a fair value for Healthway Medical from a fundamental perspective. Buying at any higher price would be a bet on the future earnings of Healthway Medical which cannot be determined with any great amount of certainty at this point in time.
I still have 20% of my original investment in Healthway Medical which were purchased at prices ranging from 10c to 13c. I still have shares which were given to me as scrip dividends which are about 11c per share in cost. I have also left a small position of those I bought at 16.5c XR as a hedge which is now losing money (which is what hedging does sometimes), having divested most of it at 16c and incurring a small loss when support became resistance. Finally, I have some entitled rights and excess rights which I got at 7.5c recently.
Fundamentally, I do not see a compelling reason rooted in the present to increase my investment in Healthway Medical. Technically, the counter might provide trading opportunities and I have identified 17.5c and 21.5 as the resistance levels to watch. 13c should be a strong support level. Good luck to all fellow shareholders.
I came across some video clips on YouTube where professionals talked about the outlook for REITs in 2010. Some make good sense and I would like to share a couple of clips here with you:
I like their advice on how we should focus on the balance sheets of REITs as well as their acknowledgement that a low gearing level is safer in case real estate values are revised downwards again. Can't usually go wrong being conservative when it comes to gearing. For those of us who are in the know, treat this as a reminder.
Re-capitalisation exercises hit REITs big time in Singapore in 2009. Off the top of my head, I remember forking out more money for MI-REIT and FCOTs' rights. Re-capitalisation exercises have strengthened REITs and with the improving credit market, with funds more readily available at lower cost, I rather think that REITs will continue to do well in 2010 and 2011.
What do I look out for in a REIT? Low gearing, high yield and preferably trading at a discount to NAV.
Saizen REIT is in an obvious uptrend channel. The closing in of the 100dMA and 200dMA indicates the formation of a stronger support level at 15c thereabouts. It also suggests a lack of volatility in the longer term. Thin trading volume as price goes sideways usually means more downward bias.
However, given the trend of the longer term MAs, the downside is very limited from current levels. Any upward push in price will meet with initial resistance at 17c and if this is overcome, the recent high of 18c might be tested. I would accumulate on dips.
Please remember that I am investing in Saizen REIT due to its very cheap valuation and potentially high yield. This is not a trade for me and I could hold this for a very long time.
AusGroup closed at 57c today on low volume. This is the second black candle day in a row experienced by AusGroup on low volume while the two preceding white candle days happened with relatively higher volume. This is a positive. The MFI has formed a higher low while the MACD continues to pull higher away from the signal line after forming a bullish crossover three sessions ago. Any continuing attempt to move higher will have to overcome resistance provided by a declining 20dMA which is at 59c today.
Golden Agriculture closed at 55c on the back of lower volume, forming a doji in the process. It was unable to break a down trending resistance line. MACD is above zero and MFI formed a higher low, indicating positive momentum and a stronger buying momentum. However, these are lagging indicators and in a situation where the trend is weak or short lived, they must be treated with care. The target remains at 59c in the event that immediate resistance is taken out. The rising 100dMA is still rising and if the price should retreat closer to this level once more, I will buy more.
Healthway Medical's trading volume expanded slightly as it formed a gravestone doji, closing half a cent higher at 15.5c. MACD seems poised to cross the signal line and zero at the same time, more or less. This is a very bullish sign. MFI has moved decisively out of the oversold territory and has more room to move up. If volume expands meaningfully with a continuing push upwards in price, we could probably see price pushing 17.5c and even retest the previous high of 18.5c.
As the stock market seems set on moving sideways with thinning volume, a downward bias is definitely stronger. Over time, even the most optimistic bulls will turn cautious and every rally attempt will see stale bulls reducing their exposure. This is likely to continue until only the really longer term holders remain or when institutional buying interest returns in a meaningful way (read upward price movement with higher trading volume) or both.
As the high beta stocks turn quiet, the more boring high yielding counters might start to look more interesting. After all, achieving 10% yield per annum is not too shabby. I am now looking to increase my investments in AIMS AMP Capital REIT (AA REIT) and Lippo Mapletree Indonesian Retail Trust (LMIR). It is no secret that I like these REITs. Their fundamentals are sound and they have attractive yields.
Using TA to look for entry points, it is obvious that the upward momentum in LMIR is over for now. The 20dMA seems poised to form a dead cross with the 100dMA soon. MFI has formed a higher low but with volume thinning, it is unlikely that LMIR is about to form a new high in price. Chances are higher that the price will continue declining and the rising 200dMA (at 44c today) should provide a stronger support. I would accumulate if price falls to 46c and lower.
Saizen REIT tried to rally today as it reached a high of 17c, only to fall back to close at 16c, forming a gravestone doji in the process. The fact that this attempt to move higher took place on the back of higher volume and failed is not positive. Nonetheless, with the longer term moving averages still moving up and being in close proximity to each other, together with the absence of selling pressure, the downside is likely to be limited. As I have a sizeable investment in Saizen REIT already, I would only accumulate further on dips.
Aims Amp Capital Industrial Reit.
Lippo Mapletree Indonesia Retail Trust.
Saizen REIT: Long-term buy.