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Investing for income and position sizing for peace of mind: Inspired by an exchange of words in Kallang Wave Mall.

Tuesday, December 16, 2014

Some time back, a reader said it must be a good feeling to be out and about and overhearing people talking about AK71 without them knowing that AK71 was listening in. I replied saying that it had never happened before and AK71 was not as popular as he thought.

Well, you know what they say about never saying never.


I was out one evening, visiting the new Kallang Wave Mall to take advantage of the opening promotional deals when it actually happened. I don't know about having any good feeling. In fact, the experience was rather spooky.

Before I go on, in case you are wondering what lobang (Singlish for "a good deal") I had in Kallang Wave mall, it was this:

I spent $200 in NTUC Fairprice using the Citibank SMRT Card and got a 7% rebate. At the information counter, I showed them the receipt and the Citibank SMRT Card and I was given a $10 Kallang Wave voucher, an Olaf plush toy (Olaf as in the Olaf from the Disney animation "Frozen") worth $19.90, a chance to spin the wheel to win more "Frozen" products and to take part in the grand lucky draw to win a trip for 4 to Hong Kong.

OK, now, you know why I went to such an ulu (Singlish for "in the middle of nowhere") mall.


Now, back to the spooky experience I had.

I was in an aisle in the supermarket looking for some biscuits when I overheard 2 ladies talking about me behind my back! I mean, literally, they were behind my back!

A: "This AK recently like very bad luck. Bought SembCorp and price dropped so much."

B: "Ya. I followed him and bought too. Now, lost about 20%."

A: "OMG! Did you buy a lot?"

B: "Not cheap. Buy a few lots also a lot of money. Now stuck. (Sigh)"

A: "Don't worry. AK says strong company. He buy for the dividends..."

Then, they walked away. I was wondering if I should follow them discreetly to see what else they had to say. I know, terrible! I was eavesdropping! Anyway, I decided not to. Imagine them calling security because an old, fat and ugly man was stalking them. Yikes!

Anyway, if you know me, I didn't write to simply share a spooky tale. There is enough stuff in that short exchange between the two ladies which disturbed me enough to blog about my thoughts.


It is true that I started buying SembCorp Industries at $5.04 per share not too long ago and I blogged about my motivations for doing so, admitting that it was not a cheap purchase at the time. It ticked all my boxes but because it was not undervalued, I nibbled. I initiated a small position.

As its share price fell, I nibbled again at various points. Some might be interested to know that I actually nibbled a bit more at $4.14 a share just yesterday. I will probably continue to take small bites because although I feel that the stock is now undervalued, I am reminded of the saying that Mr. Market can stay irrational for a long time.

Although my initial entry price of $5.04 has lost almost 20% in market value, it might be useful to know that the nibble formed less than 1% of my entire portfolio. So, it means that my portfolio has lost 0.2% in value because of that purchase. If we add my other recent nibbles and their paper losses along the way, the total paper loss due to these is probably between 1% to 2% of my portfolio's value.


So, although the absolute dollar value might look substantial to some, we must remember that it is about percentages. We should always look at our own circumstances and decide how to size our positions in the stock market accordingly. Don't bite off more than we can chew.

Finally, because I am more interested in investing for a regular income, most of my portfolio ensures that I always have funds coming in on a regular basis. Yes, even my badly timed investment in SembCorp Industries will, in all likelihood, generate income for me in 2015 and beyond. This is an important reason why I am able to stay level headed, well, most of the time.

I thought for a while whether to blog about this because the two ladies I mentioned will probably read this blog and I don't know how they would feel but I guess I should just do it for everyone's benefit, including mine.

Related posts:
1. How to make recovery easier?
2. Motivations and methods in investing.
3. Do not love unless it is worth the loving.
4. Managing exposure in investment.
5. What should I do when I am down 25%?
"... the important thing to know is "What should I do?" given a certain set of circumstances." AK

38 comments:

la papillion said...

It'll be funny to hear people talking about your blog in front of you :) I probably won't have this kind of experience lol!

It's all about position sizing... It's foolish to risk your sleep for money u don't need Haha!

AK71 said...

Hi LP,

Well, this happened behind my back. I don't know if it is going to be in front of me in future (without them knowing that I am AK71, of course) but I am wary of saying it will never happen. -.-"

Rebel said...

Omg. That is so scary to have people talking about you and your blog when you are right in front of them.

Anyway, we are all big boys and girls capable of doing our homework and thinking independently for ourselves.

AK71 said...

Hi Rebel,

It was totally spooky, I agree! I almost said "OMG" out loud. -.-"

Singapore Man of Leisure said...

AK,

Lucky they are not burly men with "ang kong" on their backs discussing what to do with your ding-a-ling-ding...

LOL!

AK71 said...

Hi SMOL,

Now, that wouldn't have been spooky at all. That would have been absolutely terrifying! -.-"

OT83 said...

Hi AK,

Nice post!! Its scary to hear this post. Maybe they will reply to this post and say hi to you :)

I have also caught some falling knife today. A nibble only, but not semb corp. I waiting for further drop before nibble a bit.

Your 1-2% maybe is 100% of my capital! That's scary too :)

yeh said...

Haha.
Well ak. One of the ladies you mentioned is me?

Well today sti drop 70 points but semb marine and Semb corp didn drop much.

I am waiting for 4 dollar. But not sure it will really goes to that price not.

Anyway now Qing few more lot semb ind n semb marine at 4.13 and 2.88 respectively.

Have a nice day:)

Well. I already immune of short term paper loss. No worry.

imdna said...

Hi AK

Do you intend to get some Keppel Corp? How do you feel about it in comparison to Sembcorp Ind?

Thanks!

qook said...

Hi AK, I also started a small position in SCI after reading your analysis. I am down about 9% now, but am perfectly ok with it. In fact, I am waiting for it to break below 10% and then I will nibble a bit more. You can tell the ladies that they should see this as a chance to buy more SCI at a 20% discount, instead of seeing it as a "loss". :)

iwimsasl said...

I am not vested on SCI till now, waiting for either CO to stabilize(think could be ~US$50+/- 10%)or price below $4 which I think is safer to long consider the current market condition.

Two qs here:
1)If u are investing for long term passive income too, why choose this one, I mean many other counters(including reits) offer much higher yield(eg:see 2 below).
2)I understand u also hold STE & SATS in your portfolio. Are u not consider buying more now?

Thanks.

AK71 said...

Hi OT,

Long time no hear. ;p

After the latest nibble at SCI, I am now waiting to see if the $4.00 support is going to hold. It looks rather precarious.

If the $4.00 support should break, we could see $3.88 next. That is some 6.5% lower than the price of my last nibble. That is probably where I would buy more, if it should be tested.

I am seeing higher lows forming in the CMF, a measure of money flow. So, I get the feeling that although money is still flowing out of the stock, the momentum of the outflow is slowing down.

AK71 said...

Hi yeh,

Oh my, you were in Kallang Wave Mall recently too? ;p

As I shared with OT earlier, let us see if $4.00 is going to hold for SCI. That is the price to watch. Whole numbers are usually psychologically important.

I am glad that you have overcome the fear of temporary paper loss. That is an important achievement for any investor. :)

AK71 said...

Hi imdna,

I think you must be the 10th reader to ask me this. LOL. ;)

Well, they are conglomerates. Their common area of business is in O&G. That is why they are being sold down by Mr. Market because oil prices have been dropping.

The other significant business arm for Keppel Corp is real estate. The other significant business arm for Sembawang Corp is utilities.

You have to ask yourself which business you feel better about and why? Then, you will have the comparison you want. :)

AK71 said...

Hi qook,

Please feel free to share your analysis of SCI with us here. I could have overlooked stuff in my own analysis. So, I will be happy to hear from you and other readers. :)

As for the ladies in question, there is a good reason why I have included related post number 5 at the end of this blog post. It was inspired by something legendary investor, Peter Lynch, said before. ;)

AK71 said...

Hi iwimsasl,

I have an idea that crude oil price is being manipulated and although it could go much lower to around US$50 a barrel like you said, I don't think such a low price would last very long.

Having said that, waiting for more clarity before investing in SCI is not a bad idea.

Simplistically, if I thought that $5.04 was a fair entry price for SCI and if we were to completely write off the O&G arm of the business, then, SCI would be worth about half of $5.04. So, there we have a guide. If $2.52 a share should happen, I am throwing in everything including the kitchen sink.

Anyway, why am I not buying more REITs and such?

Well, I already have a huge exposure to REITs and I explained my strategy in earlier blog posts on how I am trying to rely less on REITs for income as I expect a rising interest rate environment to be challenging for REITs.

Having said this, if I should see REITs that I like, I might still nibble and I did so with Soilbuild REIT not too long ago.

I am still vested in ST Engineering and SATS. With the former, I have been a long time shareholder too. I will accumulate if their stocks should see lower prices.

I see $3.06 and $2.63 for ST Engineering and SATS respectively as important supports which could be tested. If they should be tested and if they should hold, I would probably be buying more.

Cory said...

SBI $4 is a resistance stronger than Keppel $8 i feel. Anyway when STI was breaking "New high" when oil related stocks are down significantly i did feel weird. Now most of the others started to be on x'mas sale as well. And this tell the STI story. Talking about market manipulation, i will bet investment house structured that.

Anyway your nibble is literally a nip ! But it takes you to tell us in the face to comprehend it. :)

shun said...

Hi, AK,
Need your input on this:
Not very sure on this, but it seems our govt is planning to tax (or increase the tax rate?) the income of foreign properties held by locally listed Reits, whereas currently, the income from these foreign properties are exempted from taxes. Appreciate ur views on whether this is true and the estimated impact on the profits & DPS of MGCCT & Croesus. Thks.

qook said...

Hi AK, I have no analysis of SCI except the belief that oil will always be needed. I worked in the O&G sector during the time when oil ran up from $50-60 to $150, then crashed to $30s, then back up to $100s, and then now. All in the span of less than a decade. I am slowly nibbling on stocks related to O&G including some overseas counters which I have held for a long time and give good dividends.

Chua Poh Huat said...

Ak,

As SCI counter is still overvalue, Debt+ $4.5 Billions, Cash = S2.2 billions, PE less than 10. I think $ 3.50 will be safer entry point. Now be patient to wait for Mr market to head south further....

PH

AK71 said...

Hi Cory,

Intuitively, I feel that $4 should be a strong support. With the CMI forming higher lows, I have the feeling that negative momentum could be weakening.

At $4.00 a share, based on my estimate of an EPS of 40c, we are looking at a PE ratio of 10x. Given a more normalised range of 11+x to 13+x, I can say that the stock is now undervalued. If $4.00 does not hold and if $3.88 should be tested, I would probably buy again.

If $3.88 should hold and if there should be signs of a trend reversal, I would probably start buying more.

AK71 said...

Hi shun,

This is something all investors in S-REITs which have foreign income should be aware of and concerned about.

In the beginning, tax exemption on foreign income was to be permanent. Unfortunately, the government went back on the decision and gave an expiration date on this exemption. That date is 31 March 2015.

If the exemption is not extended, then, any S-REIT that has foreign income will have to pay tax on this income. This will result in lower distributable income, definitely.

With only 3 months to go, we will have to wait and see how things will turn out although I believe that an extension of this exemption is in the interest of everybody.

AK71 said...

Hi qook,

In general, my analysis follows the same vein. :)

If we believe that oil is no longer required by the world and that alternative forms of energy is going to become dominant, then, we should dump all our O&G stocks.

Oil price could go lower and it could wreak more havoc on the prices of O&G stocks in the meantime but I see this as a good opportunity to slowly accumulate stocks of industry leaders' which will benefit when oil prices rise again which they eventually would. :)

AK71 said...

Hi PH,

It is always good to have a strong conviction and a target price to home in on. I might just join you to get more at $3.50 a share. ;)

boonchin.ng said...

Hi AK,

Recently read an article written by 曾渊沧博士. I extracted one paragraph particular talked about oil price. Just to share ;)


国际石油价格大跌,最盛行的阴谋论是美国联合中东石油出口国逼石油跌价以打击靠石油出口赚取外汇的俄罗斯,以此来制裁俄罗斯在乌克兰的军事行动。也有说美国开采页岩油的技术有了突破,导致页岩油供应大量增加。奥巴马更打破一百年来石油出口禁令,允许石油出口冲击国际石油市场。过去,美国的大战略是先用其他国家的能源,自己地下所储藏的能源不论是石油、煤等等都尽量不开采,留给子孙后代。但是,不知道为什么奥巴马取消了这个禁令。

新加坡是世界上最大的石油提炼中心,石油价格大跌,石油提炼业务应该生意更好,理由是价格下跌会推动消费。不过,探测、开采石油的工作会放缓。新加坡不但是石油提炼中心,也是世界上最大的海上石油探采钻台中心,生意难免会受影响。

石油价格会跌到什么水平?我自己估计目前的水平也应该是到捞底的时候了。捞底可以包括生产钻油台的股、石油股及石油服务股这些板块。油价再跌下去,开采页岩油已无利可图。新油井的开采工作会全部停止。石油价格大跌也会使到天然气、煤等其他燃料的价格下跌,导致其他燃料的开采停止。

还有,石油价格如此低,太阳能、风电的成本就显得更高更不值得采用。这也违反了全世界环保工作的大原则。如果开始有国家因为石油价格很便宜而叫停太阳能、风电的开发,环保分子会开口谴责。

也许美国反对党也会攻击奥巴马鼓励石油出口的政策是出卖美国长远的战略利益。美国必须考虑的另一个重要国际战略是:中国正是目前全世界入口石油最多的国家,石油价格大跌对中国非常有利。中国政府已经悄悄地大量进口石油,建立石油战略贮藏库。过去几年,美国花了九牛二虎之力来围堵中国,不希望中国崛起,现在却又压低油价来协助中国,是不是很矛盾?

iwimsasl said...

AK71,

Wah u can give a precise no. like 3.06, 2.63 - Pei Fu.

I am too lazy for details, thus can only aga a range. Besides, who can say he is 'zhoon' other than Mr Market himself.

If STI cannot hold @3k, I'm looking at near term $3.0 - 2.8, $2.7 - 2.5 for STE & SATS respectively to start collecting for long term passive income. Target yield ~5% to be safer...make or break.

AK71 said...

Hi iwimsasl,

There is nothing magical about those numbers. They are just where the 150% Fibo lines are for the stocks. In a downtrend, supports could break more easily. There is also no guarantee that they would be tested. ;p

AK71 said...

Hi boonchin,

Thanks for this. It will take me too long to read it in Chinese. So, thanks to Google Translate, I got a close approximation in English:

"International oil prices have fallen, the most popular conspiracy theory is United in the Middle East oil exporters to force oil to combat the decline in value of foreign exchange earned by oil exports to Russia, in order to sanction the Russian military action in Ukraine. Also said the US shale oil technology breakthrough, leading to a substantial increase in the supply of shale oil. Obama has broken a hundred years of oil export ban, allowing the impact of the international oil market, oil exports. In the past, America's grand strategy is to use the energy from other countries, which own the underground storage of energy whether it is oil, coal, etc., try not to exploit, for future generations. However, I do not know why Obama canceled the ban.

"Singapore is the world's largest oil refining center, oil prices have fallen, oil refining business should be better business on the grounds that prices will boost consumption. However, exploration, exploitation of oil in the work will be slow. Singapore is not only the oil refining center, is the world's largest offshore oil exploration and mining rig center, the business will inevitably be affected.

"What level of oil prices will fall? I guess the current level should be to bottom fishing time. Bottom fishing may include shares of production rigs, oil stocks and oil services stocks these plates. Oil prices fall further down, oil shale has been unprofitable. The new wells will stop all mining work. Oil prices have fallen so that the price will be natural gas, coal and other fuels decreased, leading to stop the exploitation of other fuels.

"Also, oil prices are so low, the cost of solar energy, wind power becomes more and more is not worth using. This is also a violation of the principles of the world's great environmental work. If you start there are countries because oil prices are cheap and stop solar energy, wind power development, environmental activists will open condemnation.

"Perhaps the US opposition also attacked Obama's policy is to encourage the export of oil to sell long-term strategic interests of the United States. Another important international strategy the United States must be considered are: China is the entrance to the most current worldwide oil country, oil prices plunged to China is very favorable. The Chinese government has quietly import large quantities of oil, the establishment of strategic oil storage library. Over the past few years, the United States took a tremendous effort to contain China, the rise of China does not want, but now lower prices to help China, is not a contradiction?"

Thanks again. ;)

Felix Leong said...

Hi I just when all in on semb corp industries as i really like its utilities business that contributes half its earnings. I value the utilities business at 15 times earnings so a fair value of $3 per share, and we are paying only slighly over a dollar per share for the marine business that contributes 40% of profits, what a steal! I estimate fy14 dividends to be around 15-20 cents , cheers!

AK71 said...

Hi Felix,

I tend to agree with you that SembCorp Industries' stock is undervalued now.

However, sentiments are still weak and we see that in the price action. Yes, I know. I am corrupted by some TA knowledge. Bad AK! Bad AK! -.-"

I wouldn't go all in at this point or at any point, actually. I am done nibbling at SembCorp Industries for now.

I need to see $4.00 holding up as a strong support before I will add more. If $4.00 support should break, $3.88 is not far away.

jojo said...

Hi AK,
"This AK recently like very bad luck..."

I couldn't stop laughing when I read this line. Anyway, this post brought up a lot of intelligent opinions from readers about O&G and other stocks, which always interest me.

Some nuggets ...
Warren Buffett : "We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. … imagine the cost to us if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist."

Peter Lynch: "A stock-market decline is as routine as a January blizzard in Colorado. If you're prepared, it can't hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic."

AK71 said...

Hi jojo,

Always good to have the words of great men to remind us to do what is sensible and to stay the course. Thank you. :)

Don_Jerome said...

Hi AK

with your interest in SATS and ST Eng, might I ask why you don't seem interested in SIAEC?

thanks.

AK71 said...

Hi Jeremy,

Hey, long time no hear. :)

Well, there is a very simple reason. I think ST Engineering and SATS have more diversified income streams and, hence, should be safer. I like the fact that the SAF is a good customer of these two companies' too. I have a very simple mind. ;p

Don_Jerome said...

Haha cool...best answers are the simplest ones. thanks AK. have always been reading your blog, it belongs to my daily reading bookmark, just pretty busy and no time to comment.

Keep blogging! and Merry Christmas in advance!

Cheers!

AK71 said...

Hi Jeremy,

I like to keep things simple. My brain cannot handle anything too complicated. ;p

Hope to hear from you again soon. Merry Christmas! :)

AK71 said...

The US$300 million (S$400 million), 225-megawatt power plant is located in the Myingyan district of the Mandalay division. When it is completed in 2017, "the new facility will help to ease the country’s severe power deficit, which is estimated to be approximately 500 megawatts during peak periods," said Sembcorp.

“Sembcorp is well-positioned to cater to Myanmar’s increasing power needs and support its economic growth,” said Mr Tang Kin Fei, Group President and CEO of Sembcorp Industries. “The new facility will provide a reliable source of power which is integral to the country’s economic development and electrification efforts.”

Mr Tang added the investment not only enables Sembcorp to establish an important beachhead in Myanmar, it also gives the company a foothold to potentially develop other businesses in the country, such as water and urban development.

Sembcorp said it will be a signing a Memorandum of Agreement with MOEP for the investment and development of the power plant project. The total project investment of about US$300 million is expected to be funded through a mix of limited recourse project financing and equity.


Source:
http://www.channelnewsasia.com/news/business/singapore/sembcorp-to-develop/1804848.html

BfGf Money Blog said...

Great story AK!

A lot of people don't consider position sizing. I too, only nibble when I feel that the stock is overvalued.

Nice post!

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