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Sleep well at night with a plan.

Friday, August 19, 2011

Today's selling in the stock market here has not affected all counters in equal measure. In fact, for the vast majority of my portfolio, the selling has not been a big thing.


When there is strong selling down in the market, I am more interested in buying but not indiscriminately, mind you. I have a plan and I am sticking to it like glue.


Regular readers might remember me saying that I would like to accumulate the following counters if they should hit their next support levels:

1. AIMS AMP Capital Industrial REIT @ 19.5c/unit
2. Sabana REIT @ 83c/unit
3. First REIT @ 71.5c/unit

So, did I buy anything today? Nope.

Some people have advised me, with good intentions I am sure, to wait longer and I could perhaps get these at even lower prices. Indeed, what they think could happen just might. Really.

However, remembering how no one can time the market bottom, I have decided to pace myself as I buy at supports. I am more an investor than a trader, after all. I invest in these REITs for income and with distribution yields of 8+% to 10+%, everything remaining equal, they are pretty good investments.

In the last bear market, many who were expecting the market to bottom at 1200 points were sorely disappointed and quite a few missed the ride up. Those who bought at 1400 points or higher anyway were amply rewarded over the next one year and more.

This time round, I see many people are once again predicting where the bottom might be over the next few months. I won't go there.

So, what is my plan in a nutshell?

I might still indulge in some counter trend trading if the technicals look promising and I will continue to invest for income, adding at critical supports. I will continue to be invested in the stock market but keep a warchest for future acquisitions at bargain prices if they should present themselves.

This way, if the stock market reversed to move higher, I would not bang my head against the wall. Of course, if the stock market should move lower instead, I would have the resources to add to my long positions.

My plan is good for me but it might not be good for you. In fact, I am very sure that it is not good for everybody. Take stock of your own situation and decide what is best for you.

What is best for anyone, however, I believe, is usually a strategy that will allow the person to sleep well at night. That is priceless.


40 comments:

INVS 2.0 said...

Hi AK71,

"Have a plan and stick to it" - reminds me of Rich Day's Guide To Investing by Robert Kiyosaki. You read this book before? :)

Anonymous said...

have been a reader for a while. wish your best luck with the plan. I also found it easier (psychologically) to buy in the dip with a plan than to buy in recovery.

have a nice weekend!

Jason

Marco said...

What about LMIR? What would be the entry price for you?

AK71 said...

Hi INVS 2.0,

I have read "Rich Dad, Poor Dad" by Robert Kiyosaki. I nearly bought another book by him as well. ;)

Conspiracy of the Rich.

I have not read any other book by him. :)

AK71 said...

Hi Jason,

I know what you mean. As price moves down, we get the feeling we are paying less for more. As price moves up, we get the feeling that we are paying more for less. Haha.. ;)

Welcome to my blog and I hope to hear from you again in future. Good luck to us all. :)

AK71 said...

Hi Marco,

Having bought into LMIR at prices as low as 18c/unit in the last bear market, I have to overcome the memory effect here. Haha..

If I were not already vested in LMIR, anything under 50c/unit would be a nice start, I feel. :)

Marco said...

50c is my target price as well. And shall prepare to buy more at 45c, 40c, 35c...

AK71 said...

Hi Marco,

Yes, at 50c or less, we are looking at a distribution yield of 8+%. Not bad for a REIT with a gearing level of about 10%. :)

Anonymous said...

Motley:

AK71 stock plan is time tested in many sense of the word. However I cannot execute it as it goes against my temperament perhaps. I cannot sleep well if my continuos view is bearish.

On the other hand once i start buying ... the ideas will converge. I expect buying on the downtrend.

I do not use TA, but concepts of resistance is common sense because of the memory effect.

AK71 said...

Hi Motley,

You know what the Chinese say about 1 type of rice feeds 100 types of people? I guess there is no one size fits all in most things in life. :)

Go with the strategy that will allow you to sleep well at night. Once you start buying, please let us know here. Thanks. ;)

wdwyl said...

Hi AK71,

What about CMA? The price is low,too. What would you think would be the next support?

What would you recommend the percentage distribution of stock holdings? I remember to read that you like sabana very much?

I thought stocks and property are quite mutually exclusive when it comes to retail investors. you seem to be quite successful in both?
Can share?

Bewildered

AK71 said...

Hi Bewildered,

I stopped buying shares of CMA because the positive divergence I was pre-empting did not materialise.

CMA does not fit into my other objective which is to buy more high yielding counters at technical supports. With an estimated annualised dividend per share of 3c, the yield is, say, only 2.5% based on a share price of $1.20.

Yes, I like Sabana REIT. I don't know if I like it very much but I like it more now with distribution yield at 10+% and its strong fundamentals intact. ;)

I am about 50% invested in the stock market. I would not make any recommendations, however. It depends on the individual's motivations and risk appetite.

Why should investing in stocks and property be mutually exclusive? I feel that they are both investments which could make money for retail investors and should be capitalised on, if possible.

I have blogged about investing in real estate before:

Real Estate.

Please make a mental note that the blog post was written in December 2009. Personally, I bought a private property earlier in the same year and the blog post must be read with that in mind.

Would I look at buying private property in Singapore again if there should be a correction in price in the next few years? Certainly. :)

Should we be staying invested or in cash?

Temperament said...

Hi AK71,
You position your portfolio very well in the current stock market.
In this time of very low interest rate from the banks and markets flush with liquidity, Reits are one of the "best buys"/investments.
i think if the current world economic problems get worse, we will see "QE3" not only by the Americans but also the Europeans.
We will have asset inflation.
Be warned!
Be prepared!
By the way how much gold are you holding?
Ha! Ha!
I almost sell some of my wife's "lose gold jewelery" which she never wear at $1400/oz.; not that we need any spare cash.
Now it's 1800+/oz.
Seow liu.

AK71 said...

Hi Temperament,

Thank you for the affirmation. However, not everyone thinks like you. ;)

I remember having to suffer quite a bit of skepticism and, sometimes, snide remarks, for being heavy in REITs. Some of these remarks from fellow financial bloggers too. Ha ha.. ;p

I like to keep an open mind about things and that's how I got to pick up TA too. I remember being somewhat resistant in the beginning but good sense prevailed. Bigotry, not a good thing. ;)

How much gold do I have? Not enough. How much silver do I have? Not enough. Yes, I feel that I am grossly underinvested in precious metals for all the research that I did. Oh well, I just have to be happy with what I have. :)

Dividends Warrior said...

Hi AK71,

I am looking at getting AIMs too.

I got into First REIT after reading ur articles in the past. Did not disappoint. ^^

It is one of the my counters still in the green.

AK71 said...

Hi DW,

I am currently thinking of bumping up the weight of First REIT in my portfolio to be similar in size to Sabana REIT and AIMS AMP Capital Industrial REIT. I have been thinking of making these three S-REITs the core of my portfolio for a while now.

First REIT is likely to grow even bigger in time. Their aim of having S$1b of assets under management is just the first step.

Talking about $1b of assets under management, AIMS AMP Capital Industrial REIT will have that in another couple of years once the redevelopment of 20 Gul Way is completed.

Sabana REIT also has the same aim to have more than $1b of assets under management in time. It still has some debt headroom with gearing at 20+% currently.

There seems to be something magical about the amount of $1b with smaller S-REITs just like how most retail investors aspire to make their first million dollars. ;)

Anonymous said...

Can someone kindly explain why "QE3"-ish happenings will cause asset inflation? And why is that a warning? Thanks!
~RD

Anonymous said...

Hi AK,

I am thinking of buying K-Green Trust as a dividend stock. I notice from your blog that you also have K-Green Trust. What price of K-Green Trust will make you buy?

Thank you

Regards
Phyllis

AK71 said...

Hi RD,

When Lehman Brothers collapsed, it set off rapid credit tightening. Businesses were starved of credit and all businessmen know that credit is the lifeblood of businesses. Banks were all risk averse.

So, quantitative easing (QE) had to take place and on such a scale as to make a significant impact.

You can google "QE1" and "QE2" and probably find some information on Wikipedia as well.

Now, the world is flushed with credit and businesses have been hoarding cash. For sure, their balance sheets are stronger now compared to two years ago.

So, what would QE3 achieve if it were to take place? The world does not need more liquidity. Having too much liquidity would cause severe inflationary issues. This would increase the cost of living and the cost of doing business.

We need to have the liquidity in the system now soaked up and put to productive use. We don't need more liquidity. How do we restore confidence to businesses and to the people so that this could happen? That is one for the powers that be to answer. ;)

This is a complex topic and I have not even managed to touch the tip of the iceberg, I am sure. Surf the web and you will find more perspectives out there from people more qualified than me. :)

AK71 said...

Hi Phyllis,

K-Green Trust could be a good investment but assuming the worst case scenario which is the Trust losing their concessions with no plan of renewal, we would want to be more conservative and perhaps consider entering at a price which would give us more than 15% in distribution yield. That would mean a unit price of under 57c or so. 57c/unit? Yes, drastic, isn't it?

You might want to read this blog post which I believe gives an objective view of the trust:

K-Green Trust: A bad investment?

TS said...

Hi AK,

What do you think of investing in counters that deal with gold? Specifically, Think Env, which deals with gold mining in Africa. It's stock price held steady while others plunged.

TS

AK71 said...

Hi TS,

Investing in gold miners has been one of the things gurus are advising in recent times. If gold prices shoot through the roof, gold miners are logical beneficiaries. That is the general idea.

As for the company you specifically mentioned, I have no knowledge of it. You will have to do your due diligence and decide if the company is a worthwhile investment. Fundamental analysis? I think so. :)

Anonymous said...

Hi AK,
Thanks for answering and opening up a can of worms :)
My main question is on whether there is a relationship with buying REITS and the adverse effects of the "QE3".
Specifically what does temperament mean by be warned and prepared about the asset inflation, are we suppose to infer something and consider this inflation risks/issues on REITS? And although I get inflation due to printing money, how to link it to asset (i'm thinking estate/land=>REIT) inflation? Quick google suggests things like asset bubbles,but again in the context of REITs leh? Can't connect the dots...
~RD

AK71 said...

Hi RD,

What temperament meant is for temperament to explain. Whew! I think I managed to push that can of worms away rather quickly. ;)

As for your question on the possible ramifications of QE3 on S-REITs, I like to look at it from both what could be good and what could be bad.

QE3 would mean more liquidity in the market. Money will try to find investment opportunities and we could see real estate prices bouyed higher by this.

NAV of S-REITs could be pushed further up as funds look for high yields in a strong currency like the Singapore Dollar. This, in itself, would mean greater value for unitholders concerned but it might also end up lowering gearing levels of S-REITs which could spur growth.

Easy credit also means that S-REITs will have less difficulty accessing debt for growth and with lower interest rates to boot.

Now, what about the bad? Well, inflationary pressures would make costs of doing business higher. If businesses are unable to pass such increases successfully to consumers, we could see tenants defaulting in the worst case scenario. This would affect S-REITs' income which would, in turn, affect valuations negatively.

The situation is currently very fluid and it is hard to say whether:

1. QE3 would take place or not?

2. QE3 would bring greater benefits or disbenefits in the next two years if it were to be implemented?

If nothing else, approaching 40 years of age has taught me not to be too sure of anything in life. ;)

financialray said...

Yup never say never.
Think we went through the 2 possible scenarios last week.
If QE3 is rolled out, think markets will be propped out for a while but for how long? But I think its difficult la, even by manipulating the numbers, unemployment rate will still remain high and it is a matter of time again before everyone start panicking again when numbers just don't add up.
If QE3 not hinted at all this Fri, we will just see capitulation soon and any small rise this week seen as a big bear trap on hindsight.

AK71 said...

Hi financialray,

We can only wait and see. What to do? Have a plan for any eventuality and stick to it. :)

financialray said...

I hope Ben Bernanke does not even mention QE3 this fri as hopes are rising on the Fed doing something.
They say long term pain is worse than short term suffering.
Just let the markets wean off QE for good and capitulate ASAP.
This roller coaster ride will just kill more if it keeps dragging on for months and months.
By the way, AK, now many brokerages beginning to recommend investors to buy into REITs. They should have read your blog much earlier.

AK71 said...

Hi financialray,

You know how the Fed has promised super low interest rates till 2013? Actually, that means QE3 has started implicitly. ;)

As for many analysts giving BUY calls for S-REITs now, I am somewhat worried that they are doing it. Are they selling? Haha.. ;p

I still think selected S-REITs are good for investors given their strong numbers (i.e. high distribution yields, discount to NAV, conservative gearing, high interest cover ratios).

The excessive liquidity which results in the very low interest rate environment we see now will only mean that S-REITs have little trouble securing loans and cheaply too. This is likely to continue till 2013.

There is no shortage of anti-REITs people out there, as you know. They are feeding bad news and doomsday scenario to the market. Am I perturbed?

My main worry is counter party risks. REITs, after all, depend on their tenants for income. If their tenants go belly up, they get to keep the deposits which could be anywhere between 8 months to 18 months worth of rent. This is what I remember off the top of my head. During this period, they would have to look for new tenants and if the economy should be in the doldrums, it could be very difficult. We could see downward pressures on asking rents in such an instance and this would reduce DPU.

However, as long as the interest rate environment remains benign and as long as it pays to be invested more than being uninvested, I doubt that we will see industrial property prices plunging (which could then see gearing level spike) in Singapore.

Imagine a 20% drop in real estate prices and that is quite a big drop, a REIT which has 30% gearing will see its gearing rise to 37.5%. Unmanageable? I hardly think so.

Any investor worth his salt should be able to see this. Well, I do what I feel is right for me. I am not asking anyone to follow. ;)

financialray said...

wow, u mean industrial property rents collect 8 to 18 month deposits??!!
That is surely a lot compared to commercial which is only 3 months rental deposit.

AK71 said...

Hi financialray,

Yes, for industrial S-REITs, at least for those I have researched on, it is quite normal. I had a similar reaction to yours when I first discovered it. ;)

As for recent cases of tenants defaulting and the REITs taking their deposits, it happened with AIMS AMP Capital Industrial REIT. Not a bad thing too as the REIT quickly found new tenants.

This safeguard of having many months of rental deposit is another reason why I am so comfortable with industrial S-REITs although I rarely mention it in my blog.

financialray said...

Looking from the other side of the coin, if you don't mind me saying, is that industrial rentals can be very volatile and hence high risk. If economy is strong, there may not be a problem as new tenants are found pretty soon. If economy is weak, then there may not be any tenants for quite some time. Also, most industrial properties are 30 to 60 year leasehold and so rental returns have to be relatively higher to justify the risk.

AK71 said...

Hi financialray,

Actually, industrial properties are the least volatile when it comes to rental rates compared to office and retail spaces. Tenants of industrial properties tend to be less footloose. ;)

In fact, with more office tenants considering moving into high tech industrial space instead of staying in the CBD, we are seeing pressure on office property REITs.

I am light on office property REITs and have not added to my long positions in the last two years.

As for industrial real estate having relatively shorter land leases, yes, this is the case. I, therefore, require a higher distribution yield to make investing in industrial REITs more worthwhile.

Simplistically, if we are able to get a 10% distribution yield on our investments, we would have recovered our capital in 10 years and if the properties have 20 years left to their lives, well, that's all gains. ;)

Anonymous said...

Hi AK71,

The stock charts looked really bearish. In fact, I think a Bear market has already started.
What's your strategy on those Reits holdings? Albeit they give high yield, but i'm not sure if that's a good deal considering substantial capital loss (maybe 40%-50%?) is expected to be incurred in a Bear market that could last probably 1-2 years..

Joe

AK71 said...

Hi Joe,

The thing is no one can say with any certainty that we are going very much lower from here.

People who say they know for sure that we are going to revisit the lows of 2009 or go even lower are overly confident, to put it mildly. ;)

In the last bear market, many were waiting for the STI to hit 1200 before entering. If I had waited as well instead of going in at 1400like I did, I would have missed the boat. Trying to time the bottom is futile.

As we can never be too sure of anything, being partially invested is the way to go for me. Will I lose 40% of my invested money on paper in the next 1 to 2 years? I might, of course.

What would I do then? Become greedy. ;)

Holding on to sound investments which pay regular dividends as we wait out a period of uncertainty, to me, cannot go too wrong. :)

Anonymous said...

Hk AK71

Are these tp still valid today ?

"1. AIMS AMP Capital Industrial REIT @ 19.5c/unit
2. Sabana REIT @ 83c/unit
3. First REIT @ 71.5c/unit"

Understand that AIMS is seeking a 5 into 1 consolidation.

SnOOpy168

AK71 said...

Hi SnOOpy168,

For me, they still are. Technically, picture has not changed much. ;)

Consolidation doesn't bother me much. The fundamentals have not changed. :)

Anonymous said...

Good to hear that.

This time, I will learn to be more focused and patience with the top ups.

SnOOpy168

AK71 said...

Hi SnOOpy168,

We must, however, remember that charts show us the resistance and supports but it does not mean that these levels will be tested. ;)

Good luck to us all. :)

asianeyes said...

Hi Ak, thanks for the posts and I've learnt much through them. May I know with the current heights of REITs, do you sell them off? If so, how do you determine the sell off price? Base on TA & FA?
You also mentioned about buying the 3 REITs in 2011, may I know what sets the decision path? E.g No overseas exposures, directors must be shareholders too, etc?
Thanks for the generous sharing!

AK71 said...

Hi asianeyes,

2011? Wow! That was a long time ago but I believe that I usually share not only my buy and sell decisions but also the reasons behind them. This is where you do a bit of work to comb my blog for details. ;p

I have no intention to sell investments which are still doing what I expect them to do. If they are doing their job well, there is no reason to sell them. Once an investment doesn't look like a good investment anymore, that is when I reduce exposure.

I cannot share with you a simple checklist because I don't have one. Each buy and sell decision is unique and each decision, therefore, has unique considerations. :)

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