"How to tell if you are rich" by Alexander Green.

I would like to share an article titled "How to tell if you are rich" which was published 4 days after my blog post titled "If we are not rich, don't act rich!"

Although the writer used the USA as a backdrop, providing some numbers to show what households in the top 20%, 10%, 5% and 1% in the USA make and have, the ideas on wealth building are universal.

If we own a car like this, we are rich, aren't we?

Alexander Green is the name of the writer and I like his style!

If our households are amongst the top earners in the country, do we run the risk of being "demonized by those who view hard work and risk-taking as a matter of good genes and good fortune"?

If our households are amongst those with high net worth, do we run the risk of being "frowned upon by redistributionists who resent folks that live beneath their means, save regularly and handle their financial affairs prudently"?

Instead of complaining about how we are not rich when others are, try to be rich!





See if what Alexander wrote sounds familiar:

How do you get rich if you aren’t currently?

The basic formula is pretty simple: 

1. Maximize your income (by upgrading your education or job skills). 

2. Minimize your outgo (by living beneath your means). 

3. Religiously save the difference. 

4. And follow proven investment principles.





Most millionaires – folks with liquid assets of one million dollars or more – are not big spenders. Quite the opposite, in fact.

...the most productive accumulators of wealth spend far less than they can afford...

The wanna-be’s, on the other hand, are merely “aspirational.” ..... Their problem, in essence, is that they’re trying to look rich. This prevents them from ever becoming rich.





I like how Alexander ended his article: "If you want to be rich, you have to stop acting rich… and start living like a real millionaire."

Read complete article by Alexander here:
How to tell if you are rich.

Related posts:
1. If we are not rich, don't act rich!
2. The very first step to becoming richer.
3. Retiring a millionaire is not a dream!

First REIT: DPU of 0.7c.

First REIT issued 30,900,000 new units last November at 95c each to help pay for a couple of acquisitions in Indonesia. An advance distribution of 1.02c was paid for the period 1 Oct to 25 Nov.

The DPU of 0.7c announced is for the period 26 Nov to 31 Dec.

The management expressed confidence that contributions from the two new properties would boost the REIT's net property income in 2013. The full impact would be felt from 1Q 2013 which means that we would be able to tell in the next quarterly report if DPU would see a substantial increase.

When I blogged about the private placement in November, I was concerned that we would see a reduction in DPU, post placement, using the pro forma numbers provided by the management then.

Now, it seems that, apart from the maiden contributions from its two recent acquisitions in Indonesia, the REIT enjoyed higher rental income from its existing properties in Indonesia, Singapore and South Korea as well.

If I were to do a quick back of the envelope calculation using the latest DPU of 0.7c as a guide, I would say we could actually see a quarterly DPU of as much as 1.75c in 2013. This would mean an annual DPU of 7c.

Therefore, my fear of a reduction in DPU due to the dilutive effects of the earlier mentioned private placement has been allayed or so it would seem.

Interest cover ratio: 12x

Gearing level: 27.1%

With the management steadfast in its vision for a S$1 billion portfolio over time, although the REIT's balance sheet is strong, we could see more fund raising in future.

With unit price well above NAV/unit, it has become cheaper for the REIT to raise funds by issuing new units now. So, future private placements or rights issues cannot be ruled out.

See presentation slides: here.

Related post:
First REIT: 30,900,000 new units.

If we want peace, be prepared for war!

Next crash to be worse than 2008.

I had an email exchange with a reader who, amongst other things, asked me to elaborate on an often used phrase in my writings. I feel that his questions are pertinent and as there could be other readers who might have similar questions, publishing our exchange is probably a good idea.




Reader:

Hello Mr AK71, .... I am an avid reader of your ASSI blog.

First I want to say a big thank you for the many posts you have written, they have been extremely insightful to so many of us who are still learning about investing. Your guidance and advice is very much appreciated.

I have a question regarding a piece of investing advice you gave us some time ago, I hope you can enlighten us!

In several of your posts earlier this year and last year, you mentioned that we should always have a "war chest" ready should good opportunities come and we can use it generate good returns. ie buying low.

My first question is, what would you say will be a good percentage ( of one's total assets used for investing, ie both cash and stock ) for a person to put aside for such an opportunity ?

My 2nd question is, surely the opportunities you mentioned come once in a blue moon ( ie during times of recession, etc, ), and for small time investors such as myself, putting aside a considerable amount of cash while waiting for such opportunities seems "wasted" when it can be put into actual investments to generate passive income in the meantime.

To paraphrase, I fully understand your idea of a warchest, but I am in a dilemma as I would like to utilize all my available funds I have set aside for investing to maximize my passive income, and setting aside a considerable amount of cash while waiting for such opportunities doesn't seem like the best use of my money.

What is your take on this ?

I have one final question - Would you recommend investing using the extra cash one have in cpf ? ( the money after all, is just sitting there. )

I was thinking of investing it in relatively safe assets like SREITS.
Thank you so much for your time.

Lake Ashi, Hakone, Japan.

My reply:

I am glad you have enjoyed my blog and found the posts insightful. :)

I also have questions for you.

Do you believe in insurance?

When we buy insurance, we are protecting ourselves against bad things which could happen. If we know that bad things would definitely happen, would we buy insurance? More so, we would buy insurance, wouldn't we?

A war chest is like having insurance. Do you think there would be another bear market? If you think there would be, why won't you need to have a war chest?

If you think this through, you would realise the importance of having a war chest (or a few).

How large should your war chest be? This is up to you. It should be large enough to make a difference during bad times but not so large as to make you feel uncomfortable. It is a very personal decision.

I won't recommend you do or not do anything with your CPF-OA. 

I will only say that my CPF-OA money stands ready only to be used when there are compelling investment opportunities. In the meantime, it earns 2.5% per annum risk free.






Reader's reply:

Hello Mr AK, thank you so much for your reply.

I have never thought about my "war chest" as a form of insurance, but more as a liquid asset that I can use for investment. Your advice has indeed given me something to think about. :]

As to investing with my CPF, I will give it more careful thought, and also do some more research and homework first.

Please feel free to publish our exchange if you think it might help fellow readers out there. As you mentioned, I'll feel more comfortable staying anonymous. :]

Once again, thank you so much for time and advice. Your blog continues to be a source of great inspiration and knowledge.




AK's final word on the matter:
We would do well to remember that if we want peace, we must be prepared for war. If we want to be richer, we need a war chest.

Related posts:
1. Be cautious as we accept higher risks.
2. Never lose money in S-REITs?
3. SRS, CPF-OA, CPF-SA. (Note publishing date.)
4. AK71's simple strategy.

China Minzhong: Going higher to $1.22 - $1.46!

I received an email and a very interesting chart on China Minzhong from a reader, RayNg, this evening.

See what he had to say:

Historically, Mr. Market paid ~10X PER during the first 2 years of IPO. It went down south due to EU crisis and bearish outlook of China economy. I think the main concern is its high account receivable (double from fy11).

However, the fy13, its account receivable and cashflow is back to norm and this might ease investors’ concern.

CMZ’s current PE is ~ 4X (base on EPS of 0.244). If Mr. Market is willing to pay 5X or 6X, then its potential share price will be $1.22 and $1.46, respectively. I think this is possible because China has bottomed out and is in recovery phase. In fact, looking at past 3Q/fy13 result, I believe its EPS will be > 0.244.

I bought some shares during the consolidation period (Jun-Aug 2012) when the price was ranging around 55-65c. That was the time when the PE was ~3X. The reason I bought this counter is because it has good fundamentals, low PE with high ROE, strong balance sheet (retain earning) and low gearing ratio. Still holding.

Yes, I do have some concern on S-chips as most people are very scared of S-chips.

So, let us see if Mr. market is willing to pay 5-6X PER for China Minzhong's shares.

RayNg

Related post:
China Minzhong: Breakout or fake out?

Slaving to stay in a condominium. (Sanity check in the comments section. Please read.)

"House poor is no fun."
UPDATE (JUNE 2018):

A reader sent this to me:

Reader says...
Monthly income of $3500 can own a condo 😱

AK says...
Slave for life lor... House poor. Cham like that.

Salesman only wants to sell... 

We buy already is our problem liao. 😛

When we buy anything with borrowed money from banks, we don't actually own it until the loan is fully paid up. 

We might have control but we don't have ownership. 

This is why most people don't receive the original title deed to their homes until their golden years. 😉





UPDATE (DECEMBER 2016):

Why are you borrowing?

Borrowing money for important things like buying a home may be unavoidable. But getting into debt is also a major responsibility. Too much debt can easily get us in trouble.

Avoid the debt trap by controlling how much you borrow. Even if you qualify for a bigger loan, ask yourself whether you really need the item you are buying and whether you can really afford the debt repayments (on top of all your existing debts and expenses). Consider buying it another day, perhaps after saving up for some or all of it first. Interest charges and the extra you pay in instalment plans over time can add up to a lot more than you think.

Source: http://www.moneysense.gov.sg/Understanding-Financial-Products/Credit-and-Loans/Is-Debt-Right-for-You.aspx

-----------------------

In my memory, there were two people I knew whose families squeezed out all the money they could just to buy and stay in condominiums. 

One person was a schoolmate in junior college and another was a colleague during my stint in National Service.

I remember both as being extremely frugal and I always wondered why being people who stayed in condominiums were they so poor. 





Of course, those were days when I was a financial ignoramus.

Now, although I think that frugality is a virtue, it is a virtue when we are so without being forced to be so. 

If we had a choice and we chose to be frugal, good. 

However, if we are frugal because we don't have a choice, that is misery on earth!






I remember when I talked to both of them, they gave me almost identical answers. 

Yes, I was a nosey kid. 

Their families had to make hefty monthly repayments to the banks. 

So, they had to be very careful with their money.

Although I have suggested that investing in properties could give us a leg up in our wealth building efforts, I believe that buying properties without any margin of safety is foolhardy.





Basically, if we had to take the maximum of 80% LTV allowed in order to buy a property and if the monthly repayment was an amount that would lead to a very frugal lifestyle which was not by choice as a result, we should not buy the property. 

It could be within our means by conventional definition but this is one example of how we should not succumb to conventions.





Buying properties in Singapore has been seen as the way to riches. 

To many ordinary Singaporeans, buying a condominium for self-stay seems to be a natural first step.

I will share these thoughts:

1. Like I said, if we have no choice but to be frugal in life, that is utter misery! If to stay in a condominium, we are forced to live like paupers, the price is too high.





2. We have to remember that our homes do not generate cashflow. So, a home is not really an investment. It is consumption. 

So, just like anything we consume in life, make sure we do not spend beyond our means. 

In fact, we should not just spend within our means. We should spend well within our means.


Of course, our homes might have the unique property (pun unintended) of being able to appreciate in price over time which makes them unique in the world of consumption but it does not detract from the fact that our homes are not investments but consumption.





3. Borrowing to the max with no reserves means there is no margin of safety.

Probably, a $3,000+ monthly repayment on a 30 years loan of $800,000 is manageable for a couple who is making some $8,000 in combined gross monthly income. 

Now, we have lots of cheap money sloshing around, after all.


What happens when the party stops? 

What if interest rates go up just 1% which means almost a doubling from current levels? 

What if the economy goes into recession and home values decline? 

What if the couple were to be retrenched?





I won't talk about whether it is a good time or bad time to buy a condominium in this blog post. 

I will, however, say that we must be very careful or we could end up slaving just to stay in a condominium. 

Surely, this is more so for new condominium buyers who intend to be owner-occupiers today.





Related posts:
1. Good debt is always good?
2. Affordability of housing in Singapore.
3. More cooling measures on the way?

China Minzhong: Breakout or fake out?

There was a bit of excitement in the price action of China Minzhong towards the end of the day. It broke the long term resistance provided by the declining 100w MA to touch a high of $1.05.

Daily chart.

However, volume was lower than the day before and without higher volume, share price closed at $1.025 or just one bid under the long term resistance. A long legged white spinning top was formed in the process, suggesting that bulls and bears are evenly matched.

Weekly chart.

With three more sessions to go this week, we could see a new high in China Minzhong's share price if volume expands while it continues to push higher.

That volume was lower suggests that many are waiting on the sides to see who would win the tug of war.

A convincing break above resistance would invite a mad rush from the bulls. An obvious decline would invite a mad rush from the bears.

Which camp do you think I am in?

Related post:
China Minzhong: Partial divestment at $1.01.

Cache Logistics Trust: 4Q DPU 2.154c.

Full year distributable income improved 9.5% while full year net property income improved 11.7%.

However, full year DPU improved by a very much smaller 1.6%.

Why do investors like Cache Logistics Trust? Some reasons could be:

1. 100% occupancy rate.

2. Only 2% of lettable space is up for lease renewal this year.

3. Weighted average lease to expiry: 3.9 years.

At $1.27 per unit, annualised, distribution yield is 6.78%. This is much lower than Sabana REIT's but Cache Logistics Trust offers greater certainty and that alone would command a premium.

A more interesting question is whether the size of the premium is justifiable. That is another exercise in subjectivity.

Gearing is higher now at 31.7% which, however, is still comfortable.

Related post:
Cache Logistics Trust: DPU down 5%.

Vote and win cash prizes!

Make some people insanely famous!

Vote for your favourite and win cash prizes!

Go to:
Vote: Kinder Bueno Mashine mash-up and win!

Voting period: 22nd January 2013 to 5th February 2013.

K-Green Trust: DPU of 4.69c.

K-Green Trust announced a DPU of 4.69c for 2H 2012.

For a long time now, I have been waiting for K-Green Trust to gear up, acquire assets and increase DPU. Well, it seems that my wish is going to come true.

"In 2013, we will focus on acquisitions in areas of waste management, water treatment, renewable energy and energy efficiency, including assets that were identified under the Rights of First Refusal," Thomas Pang, CEO of the manager of the trust.

Perhaps, it is time to look into buying in the next bout of selling by Mr. Market.

Related post:
K-Green Trust: DPU of 3.13c.

Sensible wife and lucky husband!

Thinking of getting married soon?





Say anything you want about her but I think this lady has a sensible head on her shoulders. She and her man could afford to spend more on their wedding but they chose not to.

Apart from saving lots of money, what they did was also good for the environment as they cut down on excesses. What would she have done with the wedding gown after the whole event was over if she had gone ahead and bought one, for example?

She didn't even ask for a diamond ring from the man! She asked for a simple gold band!

Sensible wife and lucky husband.

Well, if you are worried for the economy, don't be.



Many Singaporeans are still willing to splurge on their weddings and contribute to our country's GDP.

Hey, if you are thinking of splurging on your wedding, go ahead. Don't let anyone stop you. It is your wedding and you have to be happy! :)

Related posts:
1. Not enough money to be married.
2. If we are not rich, don't act rich.

China Minzhong: Partial divestment at $1.01.

My sell order for China Minzhong at $1.01 was filled today. I retained some 50% of my investment in the company in case resistance should break which would send share price higher.

There is always a chance of a retracement in share price to supports. So, locking in some gains at resistance frees up resources for me to take advantage of any such retracement if it should happen.

Whether share price should rise or fall, I have a plan in place and could potentially benefit either way.

With 99c resistance broken, the declining 100w MA which approximates $1.03 is the immediate resistance to watch. Being a long term MA, the 100w MA is likely to be a tough nut to crack in the shorter term.

If I were to hazard a guess, I would say the 100w MA could force share price lower. In such an instance, share price could decline to as low as 80c which is where we find a flattening 50w MA. 80c is some 20% lower than where we are now.

However, in the event that resistance provided by the 100w MA is broken, Mr. Market is likely to become quite euphoric and we could see the gap formed in September 2011 covered at $1.20 eventually in such a case.

Since risk and reward analysis gives me a 50/50 chance either way, divesting 50% of my investment seems like a logical thing to do.

Related post:
China Minzhong: Share price to go higher.

Big chill in Europe (and Singapore).

This is something funny that just happened.

A colleague was saying out loud that there is a big chill in Europe. Another colleague asked if they were also having cooling measures in Europe?

This shows how, after seven rounds, "cooling measures" as a phrase has become significantly entrenched in the minds of Singaporeans.

As people in Europe experience heavy snow and blizzards far away from us in Singapore, we are experiencing chills in the form of property cooling measures.

About ten months ago, I wondered in a blog post if there would be more cooling measures and if they would extend to industrial properties. I also opined that developers would probably be offering more discounts in time to come. At that time, many friends were still very optimistic about the property market.

Well, the government has not disappointed. Neither have the developers.

Would we see a round 8? The number 8 could be an auspicious start to the Chinese New Year. No?

Related post:
More cooling measures on the way?

China Minzhong: Share price to go higher.

Templeton International, Inc. became a substantial shareholder of China Minzhong last year in May 2012. Their additional purchase of 980 lots at 84.56c a share pushed their ownership from 4.91% to 5.08% of the company.

As of 10 Dec 2012, Templeton owns some 13.05% of China Minzhong's common stocks. They bought more when the share price sank and they have also been buying as share price recovered. They are accumulating continually and some might even say, aggressively.

Dr. Mark Mobius of the Templeton Emerging Markets Group said this on 11 Dec 2012:

Successful investing is not only about picking the right stocks, but also finding values others may not recognize. We think the best way to determine if a stock is a value really boils down to growth.

During market downturns many stocks can be cheap, but if there is no future growth potential, than that stock could be considered a value trap. If a company is inexpensive and growing (and our earnings projections for it look good), then there can be a good case to invest.

When the current market isn’t recognizing this potential and we’re able to buy stocks at a discount to what we think they’ll be worth five years out, then that’s where we see value.

During a severe market downturn, you’ve got to be willing to go into the market, then wait. The global market downturn in 2008-2009 is a good example of this.

Patience and a willingness to go against the crowd mentality is a very difficult thing for most investors to do, but we believe it is critical as a long-term investor.

It is also interesting that China Minzhong was mentioned in an email sent out by The EDGE.

Apparently, the Australian investment bank, Macquarie, thinks that China Minzhong is a prime beneficiary of the country’s move to modernise and promote large-scale farming under the Five-Year Plan.

“Its large-scale vegetables origination and processing business in China is well poised to grow given the burgeoning population and increasing urbanisation trend,” says Macquarie, which has a $1.40 price target on the counter.

I like the fundamentals of China Minzhong but I am also corrupted by technical analysis. So, looking at the chart, I see a natural resistance level at 99c, give or take a couple of cents, which must be overcome convincingly before we could see the next resistance level tested.

The last session's high volume white candle tested the immediate resistance level but failed to take it out. Could it happen next Monday?

In case of a retracement, I expect strong support to be provided by the rising 100d MA. That support if ever re-tested would be where I would buy more.

Related post:
China Minzhong: What are we to do?

More smoke free areas from 15 Jan!

NEA is going to step up enforcement in the next 3 months and people who flout the new rules could be fined up to $1,000.



Of course, we know that smoking is bad for smokers. We also know that it hurts the health of the people around them. Then, why smoke?

Furthermore, with cigarettes so expensive, it makes sense for Singaporeans who are smokers to consider quitting. Buy a pack of stuff only to light up and inhale pollutants into the body?

Burning money and messing up the body. That's what smoking is. Where is the good sense in that?

Smokers beware! The bigger expenses will come in future in the form of medical and hospitalisation bills. Smoking kills in more ways than one!

People who are investing for a more secure financial future should not smoke.