The same three counters.

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: Accumulate on weakness.

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: Turning positive.

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: An oasis or a mirage?

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 yields: Successes, failures and the in betweens.

In this post, I shall share some personal experience with high yielding trusts and provide some numbers in the process for the purpose of illustration.

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.

Conspiracy of the Rich.

On my way home after Chap Gor Mei dinner (home cooked food by my mom and sis is the best!), I made a detour and visited Borders as a friend told me they are having a 20% storewide discount.  The first book I picked up was a book by Robert Kiyosaki, titled "Conspiracy of the Rich".  The title was intriguing and captured my attention.

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:

LOW GEARING
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.

HIGH YIELDS
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.

STI: Marching in place in March?

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.

Passive income: A higher purpose.

Today is the 15th day of the Chinese New Year or Yuan Xiao Jie.  

It marks the end of the celebrations and, traditionally, the Chinese people would spend the evening together with family to have dinner together on this night before starting work in a brand new year.  

During dinner, glutinous rice balls as a dessert is a must.  

Of course, this tradition is more or less diluted or even forgotten in modern day society and most of us would have resumed work before today and some might not even be having dinner with their family tonight.






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 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. 

This 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!")




----
Added on 6 August 2017:

I have been spending every single Sunday with my family and the day started with breakfast with my dad.

Seven steps to creating passive income from the stock market.

I have made it known to my family and many friends that I aim to create a minimum of $50k in annual passive income from investments in the stock market alone.  Recently, while chatting in the cbox at Bully the Bear, I mentioned this and at least one person was incredulous.  How to achieve this?

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?

Before long, you would have a significant stream of passive income supplementing your earned income from employment.  After some time, your passive income might equal your earned income and that's when you work because you want to and not because you have to.  Now, if this does not convince you, I don't know what will.

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.

P.S. For the sake of brevity, "companies" in this post refer to REITs and business trusts as well since these are primarily dividend instruments and must be considered in our quest for passive income from the stock market.

Related post:
Recommended books for FA and TA.

The case for crude palm oil.

Some of us might be aware of the criticisms made against oil palm plantations in Malaysia and Indonesia.  The following paragraph from an article in the New Straits Times summed it up nicely:

"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, AusGroup and Genting SP.

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.

Golden Agriculture: Full year results.

Golden Agriculture released its full year results today.  Compared to the previous financial year, gross profit is down 42% and EBITDA is down 33%.  However, quarter on quarter, its gross profit improved 78% and EBITDA improved 236%.  This is a strong sign that the business is improving strongly.

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