25% discount offered by Hock Lian Seng.

I have been receiving quite a number of emails recently offering discounts on asking prices for condominiums in Singapore. It would seem that local developers are feeling the heat and the decline in asking prices could persist for some time to come.

I received another email today and it is for Skywoods condominium which is being jointly developed by Hock Lian Seng, King Wan and TA Corp.

I said in an earlier blog post that the break even price for Skywoods is estimated to be $1,100 psf. So, if you would like to buy a unit in the project, getting a price that is very close to $1,100 psf would be like getting a home built for you at cost with almost no profit for the developer. This is hardly fair to the developer but this is life.

Source: www.stproperty.sg

 

For those who have been waiting to buy a condominium in Singapore, it is probably time to start looking around as it is now a buyers' market and it looks to be increasingly more so.

Related posts:
1. Hock Lian Seng: Won $221.8 million contract.
2. Buying an apartment: Some considerations.
3. Buying a private property as an owner occupier?
4. Buying a property: Affordability and value for money.

Starbucks with Song StoneCold: Assets I believe in.

Some of you might remember Song StoneCold's first guest blog here when he had kopi with you. For this guest blog, it is not just any kopi, it is Starbucks kopi. Hope you enjoy this date with Song StoneCold while sipping your kopi latte, kopi cappuccino, kopi mocha frappe etc.:

Song StoneCold says:
Human wants (and even needs) could be unlimited but too bad the cash in my wallet is rather limited.

Last week, I had one of those days when I felt a need to splurge on everything! Stocks, limited edition Batman watch and even a Rolex. I was brought back to Earth after I checked my Big Sweep tickets at the familiar Singapore Pools website. YES! You guessed it! I contributed to Singapore Pools again.

Well, I am not a spendthrift but I am not a penny pincher either. I believe in getting VALUE, buying at a value price. I am an ardent supporter of AK's blog. 

So, before I make any purchase, I will ask myself two questions (which I picked up from a blog post by AK - see related post #2 at the end of this blog):

1. Is this necessary?

2. Is it value for money?

"Simple questions. Always ask these two questions before we buy anything and, in all likelihood, we will be saving more money in future," AK.

Well, I have an additional question that I will ask myself before I "invest" in big ticket items. I like the word "invest" as it sounds very sophisticated! LOL. Besides asking the two questions that I learned from AK, I will ask myself: "Is it an asset or is it a liability?"

As what Robert Kiyosaki said: "Asset can be anything as long as it has value, produces income or appreciates, and has a ready market. Assets put money IN your pocket. Liabilities are defined as things that decrease in value. Liabilities take money OUT of your pocket."

Well my goal is to buy more assets than liabilities. I do buy liabilities too. My car is a liability but I am glad I bought it at a VALUE price. I bought my trusty Lancer Warrior for $38K with 8 years left. For me, it is "no value, no buy" or, as what AK says, "no discount, no buy".

What I consider to be assets can also be slightly different. Besides income generating assets like dividend stocks, I also consider the following as assets:

1) Courses and seminars. I consider attending courses and seminars an asset and I quote Warren Buffett: "The most important investment you can make is in yourself.…The best asset is your own self. You can become to an enormous degree the person you want to be.

"Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen. But if you’ve got talent yourself, and you’ve maximized your talent, you’ve got a tremendous asset that can return ten-fold."

Learning a skill will increase your market value and it will eventually "put money into your pocket".

Well, I always look for courses and seminars that are of value. Expensive doesn't guarantee that it is good.

2) Charity. Giving creates a feeling of abundance. It makes you feel good and makes you feel that you have more than enough. The main purpose of charity is not to expect any return of fame or accolade. Giving is from the heart and I believe you do not have to announce to the whole world what you have done.

Well, many say that charity will bring you good karma. So effectively, I believe what goes around comes around. One fine day if we are are down, who knows, our good karma might return and tide us through a difficult time. So it may be a good "asset investment" after all.

I shall end with a Warren Buffett quote:

"If you buy things you don't need, you will soon sell things you need."

So, let's spend wisely and buy more assets and less liabilities and live happily ever after! Cheers!

Another guest blog by Song StoneCold:
Getting value out of everything!

Related posts:
1. Counting our blessings.
2. Two questions that build wealth.
3. Robert Kiyosaki: 2 are better than 1.
4. The millionaire next door.
5. Affordability and value for money.

The evil instalment schemes and their minions.

Uncle saw a $5,000 LED TV.

Uncle thought, 

"Wah! So nice! So expensive leh. Cannot afford."

Sigh.




Then, there came a helpful salesperson.

Helpful salesperson, 

"Don't worry, sir. You can pay for this in instalments. Over a 60 months period, you pay only $83.34 a month."

Delighted Uncle, 

"Wah! So cheap! I can afford it now! How do I do this?"

Beaming salesperson, 

"Come with me. We just have to complete some paperwork."






Uncle, that TV is not any cheaper! 

You are just taking a longer time to pay for it! 

Here is a 32" LED TV for only $388!

Alamak. 

Why you ignore me?

In general, don't use tomorrow's money to pay for today's consumption. 

If we cannot afford it today, we shouldn't buy it. 

We should beware of the evil installment schemes and their minions as we journey towards financial freedom.

Banana?

"The road to success is dotted with many tempting parking spaces.”   W. Rogers



Related posts:
1. Two questions that build wealth.
2. If we are not rich, don't act rich.

An essential habit to becoming richer.

Someone who just started reading my blog recently asked me why am I so frugal. 

With the kind of income that I get from my investments, I should be enjoying life more, he said. 






Being frugal in my early years he could understand but why now too? 

Actually, on and off, I get similar comments from some people.

Do I really give people the impression that I am a giam siap (Hokkien for "Scrooge-like") fellow? 

Well, I must say that I have become less tight fisted with money in recent years. 






I spend money more easily especially on people I care about and I also give myself treats frequently but I still embrace frugality most of the time. 

It is difficult for me not to. 

It has grown on me and has become a habit over the years.





The Chinese people have a saying:
常将有日思无日，莫将无时想有时. 

What does this mean? 

In the days of plenty, think of leaner days. 

During leaner times, do not dream of riches but work hard to gain wealth. 






At the centre of this saying is the philosophy that we should be frugal. 

Whether we are rich or not does not matter.

So, why am I still frugal today? 

I think we have the answer.





Related posts:
1. First step to becoming richer.
2. Three point turn.
"Keep our needs simple and our wants few." AK

Tea with Ryan: SHC Capital Asia.

What you are going to read later on is a guest blog by Ryan who attended InvestX Congress recently and, in his words, is "trying to put to practice some of the stuff (he) learned there".

 

Originally sent to me as part of an email for private discussion, I had to admit that this is not something I am conversant with and asked if he would like me to publish this in my blog to see if it would attract some response from other readers. The aim is to generate some discussion.

For those who did not attend InvestX Congress, a "special situation" in investing could benefit investors even if, in Victor Chng's words, "the underlying fundamentals of the stock might not pass the typical value investing criteria but the special situation itself provides a nice opportunity for investors to profit."

So, have a read and if you have any thoughts you would like to share, please leave a comment:
 

SHC Capital Asia -
An Opportunity for "Special Situation" Investing?

 

What happened:

 

On the 18th of April, the company announced that it was in discussions about the potential sale of its entire business, triggering a 25% rise in share price from 20c to 25c. This follows an already strong year for the stock, rising steadily from as low as 13c in less than a year.

 

During the next couple of months, the stock went through a period of high volatility, with the price ranging from 20-30c, until on the 20th of June, the company announced the proposed disposal of SHC Insurance Pte Ltd.

 

The details:

 

The purchaser is ERGO International AG- a leading German Insurance company, with premium income amounting to €19bn, and over 50,000 employees. The million dollar number - the agreed consideration - turned out to be S$112.0 million - in cash. That works out to 36.6c per share. After lifting the trading halt, the stock traded in the range of 29-32c. Today, the shares closed at 30.5c, resulting in what I believe to be an opportunity for a short term (3-6 months) gain of 20%.

 

Further details on the deal:

 

The agreed consideration is based on the financial position of the company at the end of FY2012. Thus, any change in value of the company from then to the completion date of the deal will be compensated by ERGO. As of 1 January 2014, based on the audited shareholders’ equity, the purchase price will have increased to approximately S$117.5 million. Assuming the company had continued generating value at the same rate, and assuming the deal is completed by 30 June for simplicity's sake - the final consideration will work out to S$120.25 million. However, there are two additional costs involved, namely the transfer amount (1.025m), management retention (0.948m) and dividend (0.857m), which brings the final price to S$117.42 million.

 

http://infopub.sgx.com/FileOpen/ProposedDisposalOfEntireShareCapitalOfSHCInsurancePteLtd_20Jun14.ashx?App=Announcement&FileID=302058

Risks:

 

Since this is a direct play on the sale of the whole company business, the obvious risk is that of the sale falling through. There are two parts to this- the probability of the sale falling through, and the downside risks if indeed that happens.

 

First we'll look at the purchaser- it's a huge insurer under the Munich Re group, so we can safely assume this isn't some pump and dump scheme, and the purchaser really does want to make the purchase. The seller is See Hoy Chan, a reputable Malaysian developer. There is also a clear reason for the purchase - the purchaser wants to enter the growing Singapore insurance market. The conditions that needs to be satisfied:

 

(i)the approval of shareholders of the Company:

SHC Capital Holdings Pte Ltd and Allcare Investment Holdings Pte Ltd, which together hold 81.59% of the co. has promised to support the sale.

 

(ii) other than the MAS Approval, all other approvals and consents as may be necessary:

This seems likely as MAS has granted its approval in respect of the Proposed Disposal.

 

The rest are basically clauses ensuring that the co.'s accounts and indications in the discussions are true, and that they are not horsing around. I think there's no indication of why any of them should turn out to be an issue.

 

Now, let's look at the co. What if we bought now and the sale fell through, and we're stuck with the stock? The co. is an asset light business with recurring income from insurance premiums. Nearly all the assets are liquid - equities, bonds, fixed deposits, insurance premiums due, etc. The co. has essentially no debts, barring insurance contract provisions, which is money set out for expected claims.

 

http://infopub.sgx.com/FileOpen/2013_Full_Year_SGX_Announcement_28022014.ashx?App=Announcement&FileID=284090

 

Profit wise, $5.095, $5.932, $7,371 million from the 3 years since listing is growing steadily. At the current market cap of $88.7 million, the P/E is 12x - cheap considering how good the business is at creating a recurring stream of income, with little assets and no debt.

 

With this in mind, I feel that this is a great opportunity for a short term play - I highly doubt that there'll be the chance to hold this co. for long. The closing price today is 30.5c.

 

P/S: The co. plans to pay out around 30% of the final consideration as a special dividend, and use the rest of the cash for potential new business ventures. This makes it an excellent choice for a reverse takeover, as the shell can be used for quick and cheap listing, and the available cash can be used by a co. listing to expand their business (something most reverse takeover targets cannot provide, unlike IPOs). However, at the moment I'm happy to merely calculate valuation based on the cash after the sale is completed - 38.3c per share. That represents an upside of 25% based on today's closing price (30.5c).

Read Victor's article on "special situations investing": here.

Related posts:
1. InvestX Congress: Q&A.
2. InvestX Congress: Closing thoughts.

Free e-book by AK now has a cover!

This was sent to me in an e-mail:

Volume 1: Retiring before 60 is not a dream.
Volume 2: Achieving Level 1 Financial Security.
Volume 3: Don't depend on wage increases for higher income.

(Please click on the titles below picture of "e-book" to start reading.)

Someone took pity on me for being an IT idiot.

This is so cool! I think I look slimmer here too. LOL.

9pm, 23 June 2014:
I added a book title! Not bad for an IT idiot. ;p

To retire by age 45, start with a plan.

I have blogged about how it is important to have a war chest a number of times before. 

I have also said during my talk at InvestX Congress that it was precisely because I had a war chest during the GFC that I was able to take advantage of the very low prices offered by Mr. Market.

I also said that I lost quite a bit of money before which set my retirement plan back by about 2 years and how having a war chest ready helped to propel my plan forward by 10 years. 

What did I mean by this?

Now, before I continue, I have to caution that this was something that I thought about a long time ago when I just started working life as a young adult. 


I was trying to grow my wealth through investments and I was a frog in a teeny tiny well in those days. 

I was basically thinking of amassing enough wealth to retire by age 45 and the plan had a projection to age 75.

So, imagine, if you will, a Mr. Tan who would like to retire by age 45. 

He decided that he required at least $2,500 a month to be comfortable and, assuming a normalised inflation rate of 3% and using a 5 year band to help determine the amount of money needed till age 75, he got the following:





Age 45 - 49: 
$ 2,813 a month ($33,756 a year)

Age 50 - 54: 
$ 3,261 a month ($39,132 a year)

Age 55 - 59: 
$ 3,781 a month ($45,372 a year)

Age 60 - 64: 
$ 4,383 a month ($52,596 a year)

Age 65 - 69: 
$ 5,081 a month ($60,972 a year)

Age 70 - 74: 
$ 5,891 a month ($70,692 a year)

Age 75: 
$ 6,068 a month ($72,816 a year)





Now, these numbers had a bit of a buffer because the amount required per month was actually the amount required in the final year of each age band. 

So, there was more money in the first few years of each band than actually required. 

Mr. Tan was being cautious.





The total accumulated wealth required to be in Mr. Tan's bank account to fund his retirement years from age 45 to 75 would be $1,358,556. 

Now, over a 20 years working life, he would have had to save $67,928 a year towards this end.

So, losing $136,000 would set Mr. Tan's retirement back by 2 years. 

Gaining $680,000 would propel his retirement forward by 10 years. 

Finally, the answer to the question posed in paragraph 2 is revealed. 

Old people are so long winded, aren't they?

Of course, the problem really was with saving $67,928 a year, every year. 

On top of his full time job, even with a couple of part time jobs, it was really difficult for Mr. Tan. 

Mr. Tan needed help. 

He sought out Mr. Market in earnest. 





Several times, in the early years, he almost gave up but just like with friends, it takes time to know Mr. Market better.

Mr. Market has mood swings and it was during Mr. Market's particularly bad bouts of manic depression in the last few years that Mr. Tan accepted many offers which were too good to refuse. 

This is why it is important to have a war chest or a few ready.




Deciding that dividends are more reliable than Mr. Market's moods, Mr. Tan bought mostly stocks which paid meaningful and sustainable dividends. 

So, if prices were to be stuck in the doldrums, Mr. Tan would still grow his wealth through dividends collected.

Of course, buying these stocks undervalued meant that there was a decent chance of capital gains in the future too. 

Over time, through a combination of realised gains and dividends collected, Mr. Tan's retirement plan was propelled forward by 10 years.





With Mr. Tan's initial plan to retire based on accumulated wealth, there was a big problem. 

What happens after age 75 if he should be blessed with longevity? 

There should be some money in his CPF but it wasn't a good solution, was it? 

Well, with a strategy that invests for income, the problem is solved.




The Chinese people have a saying: 

谋事在人,成事在天. 

Humans plan but whether the plan succeeds depends on the heavens. 

Luck plays a part but if we do the right things, the right things have a higher chance of happening to us. 

It all starts with a plan.

"Is early retirement the right financial choice?"
Jim Ellis discusses long-term financial growth strategies.




Related posts:
1. When to be fully invested?
2. A war chest called "SRS".
3. Be prepared for war!
4. Ready for a recession?
5. $1 million in retirement funds.