REITs: For those who have paid higher prices.

Investing in REITs is as close to investing in real estate as is possible for small retail investors. We might not own whole buildings or entire units in a building, nonetheless, we have to employ a real estate investor's mentality when investing in REITs.

Like any other investments, could we see values plummeting to zero in real estate? Some people would say no. However, I would say, theoretically, yes. 

When would that happen? Simply, when there is no demand for real estate. Now, realistically, will that happen in Singapore?

If the answer is "no", then, there will always be value in real estate here.

Some friends and readers are worried because the unit prices of S-REITs have retreated some 20% from their highs. 

Well, for anyone who bought at the highs, there must be some feeling of anxiety especially if they invested more money than they should have. However, panicking and selling when prices plunge to a low isn't going to help make things better, or is it?

A fellow blogger said that, on hindsight, we should have sold at the highs and bought back at the lows. Hindsight is a wonderful thing. It is always right, isn't it? 

Some might say that hindsight is practically useless. I would say that it is how we look at it.

We always say that we should learn from experience. Now, isn't experience in the past and isn't looking at experience hindsight? 

So, hindsight is not useless if we learn from it.

I will say that the current distribution yields of S-REITs are still more attractive than any income investments I can think of that has a similar level of risk. 

Of course, the biggest risk in any investor's mind is the risk of capital loss and with rising interest rates in future, everything else remaining equal, S-REITs' unit prices could come under pressure.

It is difficult, if at all possible, to find an investor in this world who has not lost any money in investing. 

If we have not used any money that we cannot afford to lose in our investments, then, we can be more philosophical about the losses. 

However, if we cannot be or do not want to be philosophical, we have to think of our options.

Option 1
We could cut our losses. This would mean believing that either the income producing investment is no longer able to produce the income that it has been producing. (It could also mean believing that the market price of the investment is going to decline even more significantly in future.)

Option 2
Stay invested. This would mean believing that the income producing investment is still able to produce the income that it has been producing or even more. (It could also mean believing that the market price of the investment has stabilised or could even appreciate.)

For people who have not overpaid for their investments, of course, option 1 would be more a question of protecting any capital gains. For pure income investors, this entire blog post could possibly be just an academic exercise.

I thought long and hard on how to write this blog post in as neutral a tone as possible but at the same time making sure it is not a useless fence sitter. I can only hope that I have succeeded.

Related posts:
1. S-REITs: Are we asking the right questions?
2. Be cautious while climbing the S-REIT tree.
3. Never lose money in real estate and REITs?
4. 2012 full year passive income from S-REITs.

Low budget (and healthy) dinner.

This was what I had for dinner just now:

Home cooked. Healthy for the body. Healthy for the wallet. Delicious too.

Related post:
AK71 bought healthy lunch!

Old Chang Kee: Almost 70c a share.

On 30 May, I mentioned that Old Chang Kee's shares at 56c a piece were not expensive and that with a PER of 11.29x, I thought Old Chang Kee fairly valued.

Today, Old Chang Kee's shares hit a high of 69c before closing at 67.5c. It is now 20.5% higher than where it was on 30 May and 160% higher than my entry price.

At 69c, PER is 13.9x. This does not sound cheap to me. However, chatting with someone who is vested in Breadtalk recently led me to wonder if I have been too conservative in my valuation of Old Chang Kee's stock.

Breadtalk's full year EPS in 2012 was 4.263c. At 90c a share, its PER is more than 21x! Even though its EPS improved some 14.8% in 1Q 2013, annualised, we could still be looking at a PER of more than 18x. If we were to compare with Breadtalk, Old Chang Kee seems relatively cheap.

Assuming that Old Chang Kee's EPS stagnates, to reach a PER of 18x, its stock would have to trade at 89c per share. Is that going to happen? Your guess is as good as mine.

Related post:
Old Chang Kee: More free curry puffs on the way.

NeraTel: Is there no telling how high it could go?

The share price of NeraTel broke 65c resistance yesterday and it has been rocketing up since. A friend told me that I have done it again! Honestly, I think Lady Luck's the one who is working hard here. I am just lucky.

Last month, I increased my investment in NeraTel by about 10x, recognising its strong numbers and also its attractive dividend yield. At 60c, a 4c dividend represents a yield of some 6.67% which is pretty decent. Even at 63c, 4c gives us a yield of some 6.35%.

Technically, it is quite easy to see from the chart why I accumulated at 60c to 63c. The counter seemed to be basing in that range.

The new found strength in NeraTel's share price probably has a Myanmar connection. Two of NeraTel's customers, Telenor and Ooredoo, won contracts in Myanmar and have 9 months to commence operations. They will have to open up project tenders soon and NeraTel has a good chance of winning the tenders. OSK DMG has a target price of 79c for the counter.

What is my plan now?

I really have to examine my motivation for investing in NeraTel. When I first bought in at 40.5c, it was primarily for the attractive dividend. Recently, I increased my exposure to the counter with a slightly better understanding of the company, still liking the numbers and the attractive dividend.

Even if its share price should hit 79c, dividend yield is still a reasonably attractive 5.06%.

However, I suspect that Mr. Market is now pushing up the share price of NeraTel based on expectations. So, although I do not think NeraTel's shares are expensive even now, things could get bubbly if this continues. Traders chasing the breakout must do so knowing the risks.

Breaking a many times tested resistance at 69c on the back of high volume is very bullish. However, parabolic movements in prices are usually unsustainable and we could see a pull back as price tries to find support.

69c could be the resistance turned support and, for anyone who is thinking of buying on weakness, that is probably a price to watch out for.

In the meantime, to all fellow NeraTel shareholders, if we would like to divest partially (or fully) to lock in gains, there is certainly nothing wrong with taking profit. However, I would ask that we look once more at our motivations for being vested in the counter to be sure. In any case, congratulations!

Related post:
Which stocks have I been accumulating in June 2013?

Fish and chips, good and cheap!

I saw my colleague having fish and chips a few days ago and it looked really good. I gave in to temptation and had a very good lunch of fish and chips today too!

 

Bought from the canteen. $5.50 only! Good value for money. I like.

Tea with Matthew Seah: OCBC Blue Chip Investment Plan.

I am constantly looking for people who are good writers and who have a savvy for investments. 

Some of you might remember reading an article about a young investor in the most recent issue of The Sunday Times. 

Matthew Seah is only 25 but what he has achieved is far more than what I did at his age.

I discovered the following Monday that I had actually been chatting with him for a few days already and that he is also a regular reader of my blog, having commented in a few of my blog posts before as well. 

I could not reconcile the Matthew who commented in my blog posts with this Matthew whom I have just started chatting with recently because I always thought he would be much older.

Well, I always say that I am a frog in a well. 

I just discovered (again) how small my well is.

I asked Matthew if he would like to do a blog post for ASSI and he kindly obliged, choosing to write a piece on OCBC Blue Chip Investment Plan. 

This blog post shows how logical he is in his approach and how sound he is in his ideas. 

I certainly hope that this is the first of many blog posts in ASSI to be penned by Matthew.





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The Business Times reported on 25 Jun 2013 that,

“OCBC Bank announced today the launch of the OCBC Blue Chip Investment Plan ("the Plan"), a regular investment plan that allows retail investors to purchase Straits Times Index (STI) stocks for as little as S$100 a month.

Investors can use cash or, funds from Central Provident Fund (CPF) or Supplementary Retirement Scheme (SRS) accounts to invest in one or more stocks from a selection of 19 Mainboard STI stocks and one STI Exchange Traded Fund (ETF).

OCBC Bank also saves first-time investors the hassle of opening securities trading and Central Depository (CDP) accounts by buying the stocks on their behalf on a pre-determined date every month.

The 19 stocks were selected as they are included in the CPF Investment Scheme (CPFIS) from the entire portfolio of 30 blue chip stocks in the STI.”

For more details, see: OCBC Blue Chip Investment Plan

This investment plan is targeted at young working adults who do not have a lot of cash to buy one lot (1,000 shares) of blue chip. One lot of blue chips can cost somewhere between $600 (Golden Agri) to $43,000 (Jardine C&C). OCBC has kindly left out those STI components that are fairly affordable, stocks valued less than $1, as they cost less than $1,000 per lot to purchase.

This investment plan employs the Dollar Cost Averaging technique where you invest a fix amount each month, regardless of the share price.  Dollar Cost Averaging allows you to buy more when the price is lower, and consequently less when the price is higher.

Investopedia does a good job of explaining this technique: Dollar Cost Average.

What should a young working adult buy?

I am assuming the a young working adult to be enthusiastic, ambitious , full of drive. Thus, he/she would not have much time to do any due diligence when it comes to investing. He/she would not want to add more stress to his life by trying to beat the market. Trying to beat the market requires lots of control over your emotions, which might not be easy for a young investor who has not experienced the greed associated with rising prices, nor the fear associated with falling prices.

As such, I recommend investing only in the Nikko AM STI ETF. Investing in Nikko AM STI ETF would allow you to own all 30 STI components at once, hence eliminating the hassle of choosing the individual counter. Investing in the ETF also allows sufficient diversification to weather financial shocks to some extent.

The components of STI are reviewed semi-annually by FTSE Group to ensure that non-performing companies are replaced. E.g. NOL was removed from STI and replaced by IHH on 13 Sep last year. By investing in Nikko AM STI ETF, you can be sure that you are investing in the best 30 companies (or perhaps the 30 better than average companies) listed on the Singapore Stock Exchange.

While the Investment plan may be good, you should also consider the charges involved.

The charges involved are as follows: 

Click on pic to enlarge.

So the charges involved for investing each month is 0.30% or $5 per counter, whichever is higher. It might seem difficult to understand, but here’s a chart to help you.

Click on pic to enlarge.

As you can see, the fees are pretty high, at 5% when you invest $100 per month ($5 is higher than the 0.3%, thus the fee incurred in this case is $5). However, the costs involved is greatly reduced to an optimal 0.30% when you invest $1666.67 per month (In this instance, 0.3% is also $5) or more.

What this would mean is before you can even make any money, you will need to pay OCBC a fee of up to 5%. Whatever that is left will need to grow by 5.3% before any profit can be made (after paying 5% fees, you have $95 left. In order to get back to $100 using $95, the returns needs to be 5.3%). This kind of charges are the same when you open any other trading accounts, but the fees incurred may vary.
 

I feel that any fee below 1% of your invested capital is manageable as long as you are really holding for the long term. Hence please invest at least $500 per month if you are taking up the OCBC Blue Chip Investment Plan, and invest only in Nikko AM STI ETF for sufficient diversification.

See also:
1. POSB Invest-Saver Account.
2. Dollar Cost Averaging and expected returns.

Visit Matthew's blog:
Compounding for a better future.

Related post:
Inflation adjusted retirement income plan.

The secret to avoiding financial ruin.

We hear these two lines all the time:

"It is so easy to spend money."

AND

"It is hard to make money."

Perhaps, we should also remember these two lines:

"If we are not careful, it is easy to get into debt."

AND

"It might be really hard to get out of debt."






So, what is the secret here? Don't get into debt!

When I was a secondary school boy almost 30 years ago, $1m was a lot of money and during a class discussion, I asked how was it possible to spend all that money? The teacher looked at me like I was some alien and my classmates laughed at me.

Well, a HDB 3 room flat in D4 in those days cost only S$50,000 or so. Cars were much cheaper too. Of course, prices have shot through the roof by now. However, back then, I seriously could not think of how anyone could spend all that money with ease.

I remember always tracking the interest rates offered by the banks on our savings in those days and how I would shift my savings from one bank account to another to get the highest interest rates possible. 

Now, when I look back, my efforts were pitiful since my savings were so little but an extra S$50.00 a year in interest collected mattered so much to me then. Those were hard times.





Some will again say that I have a peasant mentality to wealth building, but I know myself and I rather be a happy peasant.

Increase our income, reduce our expenses and don't get into debt. 

Do all these and we might not become filthy rich, of course. Do the opposite, however, and we are in for financial ruin.




Related posts:
1. To be a happy peasant.
2. From rich to broke?
3. If we are not rich, don't act rich.
4. Today's millionaires.
5. Not enough money to be married.

AK71's Facebook.

There are great artists in this world and there are great IT brains too.

I am really slow when it comes to IT stuff and I know bloggers like Drizzt (InvestmentMoats) and LP (Bully the Bear) who have kindly tried to influence me to become more IT savvy at one time or another have probably given up on me. Friends and colleagues too have found out what a dinosaur I am.

Which one is AK?

Blogging is something I do for fun and I don't want to feel any pressure to learn new stuff. Otherwise, blogging becomes stressful and when something becomes stressful, it is no longer fun.

Anyway, I think I might have moved up the IT ladder today as I have included a "Follow AK on Facebook" button in my blog's left sidebar. This is after receiving questions from readers on whether I have a Facebook account.

I do have a Facebook account. I started one a few years ago at a friend's recommendation to build up readership numbers for my blog but I didn't do much to it or with it. I still don't.

Anyway, try the button and let me know if it works:

If it doesn't work, I will need to seek help.

They were just showing off their wealth!

I was out the whole Sunday. I left home at 9am to meet a friend for breakfast. Then, I went to the gym before meeting another friend for lunch. After that, I went shopping before taking a break at UOB, reading all the periodicals I bought the night before.

In the evening, I went to Vivo City where I had dinner at the food court before doing a bit more shopping. I hardly do any shopping usually but I was looking for some things. Well, I found the stuff I was looking for in MUJI and Franc Franc. Yup, they were household items.

It is good to spend a whole day outside once in a while because I spend too much time cooped up at home. My Taiwanese friends call me a 宅男 which is not a compliment as I discovered. Anyway, being me, I couldn't help observing people and overhearing the kind of things they said.

While walking past the front of Hilton Hotel, a youngish couple drove into the driveway and parked their car alongside the Jaguars, Mercedes Benzs and BMWs. They were driving a bright red Ferrari with three exhaust pipes. Very impressive looking.

A little boy and his dad saw this too and as they walked past me, I heard the boy saying something about the car being nice. The dad told the boy, "They are just showing off."

Although I think that a Ferrari is not a very practical car for Singapore's roads, there are people who have lots of money and which car they drive is a matter of personal choice. I don't think it was appropriate for the dad to say what he said to the boy. In fact, it sounded a bit sour to me.

Perhaps, he could have responded by saying that it was indeed a nice car but it wasn't very practical to have cars like that in Singapore. He could go on to explain why. 

Would not such a response be more educational?

Related post:
Change to become richer: need or want?