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No change to my plan as I plan changes to my life.

Thursday, September 15, 2011

Recently, I have not been blogging very much about the stock market or anything to do with investments, I am sure regular readers have noticed. There are various reasons for this but the primary reason is because I have put in place a plan for whichever direction the stock market may go.

If the stock market should trade sideways, I will keep the status quo and simply collect income from my investments. There is no need to trade constantly.

However, recent and future changes in my life are likely to result in less free time in future. I am and will be spending more time with my family, on self-improvement and, perhaps, even travelling.

Although I am not really affected by the current state of the stock market, going by the emails I have received, I know many people are. It is no surprise that many are wondering what to do. Should they hold? Should they sell? Should they buy more?

I always tell people that if they do not feel comfortable investing in something, don't. There is no point in being invested in the hope of making money and getting sleepless nights worrying about how the investment might turn out.

Of course, for the more open-minded and those with more questioning minds, asking questions to understand why the discomfort exists is the way to go. From there, go one step further, ask questions and see if the reasons for any aversion are actually valid. This would point us in the right direction.

Now, regular readers would know that I am heavily invested in certain S-REITs. I continue to believe that the very low interest rate environment which is likely to persist till 2013 is going to be good for REITs.

In an environment where economic growth is more likely to be revised downwards than upwards, REITs' more predictable and consistent income streams are also a big plus. REITs can continue to do well even with a reduction in economic growth or even with zero growth. In prolonged recessions, REITs are also quite resilient even if some tenants go broke because of the many months of rental deposits they collect from tenants.

So, being relatively heavy in S-REITs which provide between 8 to 10% per annum in distribution yield while I sit out the volatility in the stock market provides me with a peace of mind and some meaningful regular income at the same time.

Recently, there were people who mentioned that we have to be concerned with the fact that most industrial properties in Singapore are between 30 to 60 years leasehold in nature. Therefore, the high distribution yields are not perpetual. Of course, they are not perpetual but this does not mean that they do not make good investments in the meantime.

I learned through experience that freehold properties do not necessarily mean that they will do better in terms of valuations or rental income. It only means that they are yours in perpetuity. I can say for a fact that certain leasehold properties have done much better than freehold properties in the last few years. How much a piece of real estate is worth depends on demand. It is quite simple.

With demand for industrial properties, especially high tech industrial types, likely to remain resilient in Singapore, investing in industrial properties S-REITs with stronger numbers cannot go far wrong. In this respect, Sabana REIT has my vote.

What about AIMS AMP Capital Industrial REIT? Well, even its most vehement detractors (mostly from its MI-REIT days) must admit that the REIT has done much better since George Wang et al came into the picture. Like I said in an earlier blog post, some short term pain is likely with the redevelopment of 20 Gul Way but the longer term benefits make it worthwhile.

Finally, to dispel the misconception that I am a diehard optimist of REITs, I will say again that it is unlikely that conditions will always remain this benign for REITs. I am, therefore, unlikely to remain heavily invested in REITs forever. There will, most probably, come a time to divest but the time is not now.

Of course, my believes remain just believes. They form partially the basis for the plan I have in place now. Although I feel that my plan will serve me well, there is no way to be sure until the storm is over. Do your own due diligence and if you feel that my plan suits your purpose, go for it.

With my finances almost on auto-pilot, I will try to spend more time on other aspects of my life from now.

Related post:
Staying positive on S-REITs.

20 comments:

Anonymous said...

Hi AK,
Good that u are focusing on thing which money cant buy. This should be the way ppl live rather then chasing money and money until they forget the meaning of life. Again u have up one level Anw, just curious are you married with kid?
K

financialray said...

Yes, AK, I also bought Sabana.
I would say you have a sound investment strategy. No fear.
For freehold residential properties, I would agree location is more important and generally if it is for investment, no difference whether 99 or freehold.
However, for commercial properties, a freehold is definitely more valuable than a leasehold. The value of a commercial property is determined by its rental income which in turn depends on several factors, location being one of the most important. Its value will also drop if its leasehold has substantially declined as buyers also need to factor in the value after they have paid up their mortgage loan. So a freehold will have much more value.

AK71 said...

Hi K,

I am working on another blog post about people chasing money actually. It is such a coincidence that you should talk about it too. :)

Nope, I am not married but whether I have a kid, I am not so sure. Hahaha.. ;p

AK71 said...

Hi financialray,

For me, I understand that value is determined by demand and supply. Basic economics.

For example, in the process of selling my condo in Tiong Bahru not too long ago, I discovered that people were paying around $1m for flats in those really old 4 storey HDB walk ups! That was 2/3 of my asking price for my 4 yr old freehold condo. Isn't that amazing?

For industrial properties, similarly, demand will determine their value. If they are able to command a higher yield, their valuations will be higher too. As I have mentioned in an earlier blog post that current valuations are still below the peak achieved before Lehman Brothers went under.

Granted that depreciation has to be taken into consideration but when leases are still relatively long (i.e. 25 to 45 years), there is no need to be melancholic.

REIT managers must actively dispose of ageing properties and acquire new ones in a renewal process. That is the way.

Finally, like I said, if people are uncomfortable with an investment, stay out of it. :)

thepotatotimes said...

Yes, I also do not think we need to nor should monitor our investments day in day out. Ultimately, that's not what we are truly living for right?

I also enjoy a strategy that pays out a regular income periodically, it provides some reassurance that we are moving in the right direction or at least provide some downside protection. However I also aim to look out for companies that provide us with some good decent capital gains at the same time.

AK71 said...

Hi BJ,

Apart from being invested in S-REITs, I am also invested in STE and SPH which pay good dividends to shareholders.

I would like to increase my investment in CMA in time as I believe that their shares will provide good capital gains in the not too distant future.

Being heavily invested in S-REITs now, I am also thinking of the future and how best to prepare for a time when S-REITs are no longer good investments.

If Mr. Market should go crazy and offer me much lower prices on preference shares issued by the local banks, I will buy some.

I have been waiting for an opportunity since my investment in DBS NCPS6% matured after 10 years.

I will also buy local banks' normal shares. Why?

If we believe that interest rates will go up one day, banks will do very well and the time to buy is when Mr. Market is overly pessimistic. ;)

Of course, if interest rates go up, the cost of doing business will increase, REITs' included. A case in point is India's current situation.

Inflation is 9+% now. The RBI has been increasing interest rates and this is squeezing businesses as they live with thinning earnings.

Nothing is completely good or bad. Throw in time as a factor, things get a lot more interesting. ;)

Anonymous said...

Congratulations AK, you made it. Enjoying the fruit of your labors.

Not easy to have a plan and stick to it - regardless of the content of that plan.

Within limited resources, I am still aim for the day that the rent/dividend income can give me comfortable lifestyle. Just need no major distraction along the way.

Looking forward to your new blog and more updates here. ^-^

SnOOpy168

AK71 said...

Hi SnOOpy168,

Thank you. :)

It has been a long journey and I got lost a few times along the way, honestly.

What Warren Buffet said about being greedy when others are fearful is 100% right.

If not for the fact that I bought real estate during the SARS period and again during the last crisis together with beaten down stocks, I would not be able to have the plan I have now.

I firmly believe that everyone can achieve financial freedom. It is just a matter of taking the route we are most comfortable with. :)

Calvin said...

AK, you are right about spending more time with your own life. That is what living is all about.

I have a similar philosophy and I haven't moved my stocks around much. It's a good plan to wait until the market have bottomed to pick up the banks as on the uptick, interest rates increase will boost bank margins.

Hopefully by then, the rental rates would have picked up as well, thus negating the effect of the rising interest rates and boosting DPU.

Calvin
www.investinpassiveincome.com

AK71 said...

Hi Calvin,

I do not know whether rentals would improve so much as to compensate for much higher cost of borrowing in future. That is something we will have to wait and see. For now, S-REITs are still good investments for income. :)

INVS 2.0 said...

Hi AK71,

Can I attain your permission to reproduce this excellent blog post with some little edits here and there to fit into my personal context, so as to paint a picture of my current finance? :)

Hwang said...

Love your trademark "have a plan and stick to it." I think everyone should have their own plan.

And what do you mean "... but whether I have a kid, I am not so sure...."

Haha...

Singapore Man Of Leisure said...

Hello AK,

Salutations and greetings!

LOL! I don't plan anything beyond my "expected" life expentancy - 99 years to me already very greedy of me!

That's practical me talking.

To our good health and long life!

Cheers!

AK71 said...

Hi INVS 2.0,

Very decent of you to ask for permission. :)

OK, as long as you acknowledge the source, go ahead. This is the academic in me talking. Haha.. ;p

AK71 said...

Hi Hwang,

Yes, my plan might not be suitable for you and vice versa. We should all have our own plan. :)

Of course, sometimes, accidents happen and plans could go awry. So, it is hard to say if I do or do not have any kids out there somewhere. ;p

AK71 said...

Hi SMOL,

To our good health indeed! I don't know about long life though.

I think 72 is a good age for me to go. That would give me 10 years from age 62 when I start to withdraw money from my SRS account. Hahaha.. ;p

mark said...

Careful a kid from somewhere doesnt turn up at your door claiming to be your kid - and claiming for a portion of your frits. Beware of people who entice kids to do it too *rubs hands with an evil grin*

AK71 said...

Mark, you are going to give me nightmares! Hahaha... ;)

mark said...

Your nightmare - 2 words. Hi Daddy!

AK71 said...

Mark, -.-" Go watch Fright Night! That is less of a nightmare. ;p

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