Revisiting AK's simple strategy with Charlie Munger.

Readers who attended InvestX Congress last month would remember that I quoted Charlie Munger:

"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." Charlie Munger




Lesson #1:
We always need a war chest.

Lesson #2:
There will be great opportunities to make money. Be patient.

Progressing from this, readers will also remember that, at the event, I attributed the moderate success I have had in my stock investing journey to my inclination to take a look when there is blood on the streets.




"When there is blood on the streets, go take a look lah," AK.

This is, of course, a Singlish version of what Sir John Templeton said, "buy when there's blood in the streets". 

Like my fellow blogger, SMOL, I borrow with pride.

AK is a frog in a well.

"... know what is the best way to make money from the stock market? It is to buy at the depths of a bear market when even the best blue chips are bombed out. During the GFC, I bought many more units of First REIT at 42c and LMIR at 18.5c. During the deep correction at the end of 2011, I bought more AIMS AMP Capital Industrial REIT at 95c ...

"However, without any money put aside, there is no way we would be able to take advantage of opportunities to buy on the cheap! Indeed, we might not even have to wait for a bear market to buy bombed out stocks as mispricing by Mr. Market could happen anytime and my large purchase of units of Saizen REIT at under 13c per unit middle of (2012) is a good example."
Source: Achieving $1 million in retirement funds.




To cut losses and to sell out of fear then would have been a terribly wrong thing to do. 

Not having a war chest ready to take advantage of the opportunities would have been a terribly regretful situation.

"If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor." Charlie Munger




Remember, we do not have to be 100% invested all the time although it is easy to feel a bit left out or a bit regretful that we are not putting more of our money to work as stock prices climb higher. 

Now, it might not be a bad thing to have a war chest full of cash and not do anything with it.

"There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash and I don’t want to go back." Charlie Munger




By now, my war chest is quite heavy and this blog post is to remind myself that patience is a virtue.

Related posts:
1. Journey to financial freedom needs preparation.
2. To retire by age 45, start with a plan.
3. The mystical art of wealth accumulation.
4. Three points in stock investing.
5. AK71's simple strategy (Sep 2012).

Sabana REIT: Innotek Limited to divest 15 million units.

On 17 April 2014, I said that if we were to demand an 8% distribution yield from Sabana REIT, unit price would have to decline to 94c a unit. 

It seems that Mr. Market has been quite happy to accept a distribution yield of 7.16% or, perhaps, Mr. Market expects DPU to improve in the following months. Whatever the reason, Sabana REIT's unit price has been hovering at the level of $1.05.

For reasons I listed in the same blog post, I reduced my exposure to Sabana REIT substantially. With more master leases expiring by end of 2014, there is a chance that things could worsen and income could come under pressure.

The news that Innotek Limited which has 15,000,000 units of Sabana REIT is making a full divestment could send unit price of Sabana REIT declining in the coming weeks. 

Innotek Limited paid $1.05 a unit for this investment made in November 2010 and has benefitted from regular income distributions in the last 3.5 years.

Given Sabana REIT's rather lacklustre track record, Mr. Market should demand a greater premium in distribution yield from Sabana REIT compared to a blue-chip industrial S-REIT like A-REIT (6.1% yield) or even AIMS AMP Capital Industrial REIT (6.95% yield).

Indeed, the premium has always been about 2% over A-REIT's yield. So, without seeing at least an 8% distribution yield for Sabana REIT, it is unlikely that I would increase exposure to the REIT. 

Offering an 8.5% distribution yield, everything else remaining equal, would probably see me dipping my toes in the water with less trepidation. 

Of course, this could either happen with unit price declining or DPU improving. Which one is going to happen first? I don't know but I do know what I will do. As usual, ask not what will happen but what will we do if something should happen.

Related posts:
1. Sabana REIT: DPU of 1.88c.
2. Portfolio review: Unexpectedly eventful.
"In the S-REITs department, the biggest change this year to my portfolio has to be the major divestment in Sabana REIT. My current long position in the REIT is just a bit more than 10% of my investment at its largest. Whatever I have left is free of cost and will continue to generate passive income although on a much smaller scale."

When to buy SPH's stock?

A reader who attended InvestX Congress wrote to say he enjoyed my presentation at the event and that he was especially enlightened as to why I thought SPH made a better investment for income compared to SPH REIT which led to me plonking down more money in SPH's stock. He then went on to ask if this is a good time to buy more of SPH's stock.

Yikes! I am very afraid of questions like this, regular readers of my blog would know.

So, I asked him what did he think the fair value of SPH's stock was? If he were a value investor, he would want to buy it undervalued. Of course, I reminded him that valuation is a subjective exercise and depending on what he focused on, he could come up with different fair values.

Personally, I feel that the fair value is about $4.20 a share, give or take a few bids. So, I do what I sometimes do and which I did not talk about during InvestX Congress. It wasn't something I was supposed to talk about at the event.

What did I do?

I looked at the charts.

Click to enlarge.

I see lower highs on the MACD, a momentum oscillator, as higher highs in the share price were reached at $4.17, $4.26 and $4.27. This is a negative divergence. This is an indicator that weakness is on the horizon.

Immediate support is currently provided by the flattening 200 days moving average (200dMA) at $4.14. Is this support going to be tested next week? Possibly.

Bearing in mind that the 200dMA is a long term moving average, if support at $4.14 should be breached, we could see SPH's share price moving much lower. How much lower? That is hard to say but we can use Fibo retracement lines to get a glimpse of where the supports are likely to be.

Click to enlarge.

Share price could retrace to $4.10 (the 50% golden ratio) or $4.055 (the 38.2% golden ratio). The support provided by the 23.6% Fibo line is a weak one at $4.00. So, if share price should go that low, we are likely to see $4.00 support breached.

So, given the technical analysis I did, if I didn't yet have a long position in SPH, I might wait to get some at immediate support which might be moved higher to $4.15 since the 61.8% golden ratio is at $4.145.

If I already had a long position in SPH (which I do), I will wait to accumulate on weakness which, given the negative divergence observed in recent weeks, looks likely to happen.

Related post:
SPH: Within expectation.

We can help to lessen the pain.

On 25 May, I put up my complimentary ticket to InvestX Congress 2014 for auction, promising that the proceeds would go to a charity of my choice. Within 2 days, I closed the auction after receiving the top bid of $99 which was equivalent to the regular price of the ticket.

Now, here is the proof that I have made a donation with the money received:

When a reader asked me on FB which charity would I be making a donation to and whether it would be to NKF, I told him I would be making a donation to KDF. It was the first time he heard of KDF despite the fact that it was set up in 1996.

KDF is a not-for-profit and independent charity to help needy kidney patients who lack funds for dialysis and also to find a cure for kidney diseases. They work together with NUS in their search for a cure for diabetes. I like the vision of a world where people no longer have to suffer from diabetes.

Learn more about KDF: www.kdf.org.sg

There are people who are forced to sell their cars and valuables due to financial hardship. There are people who suffer financial hardship but have nothing valuable to sell. For these people, if financial hardship is due to health reasons which prevent them from being gainfully employed, we should offer a helping hand, if possible.

Related posts:
1. InvestX Congress: AK's ticket is up for grabs.
2. Forced selling due to financial hardship.
3. Counting our blessings.
4. Towards better mental health.
5. Voluntary contributions to CPF.

Want to win $14,000 to $19,200 a year?

I know someone who would bet $300 to $400 every week on 4D and Toto. It is simply mind-boggling to me.

When I found out, I suggested that he should save the money every week instead.




To me, it is a no-brainer. 

I explained to him that, in a month, he would save $1,200 to $1,600 and in a year, he would save $14,400 to $19,200!

That is quite a lot of money.

His reply to me,

"Hey, what if I gave up and one of the 4D or Toto combinations I always buy appear as first prize har? You compensate me har?"

I was speechless! 




I mean if he had listened to me, I would have gone on to explain the next step of how he could invest that $14,400 to $19,200 a year for a dividend income of $720 to $960 a year which although not a lot is nice to have.

Then, imagine doing it year after year!

Gambling is like a drug.

This person is so hung up on the possibility of striking it rich and he has been doing this for so long that he is unable to quit for fear that all his previous "investment" would go to waste.




Chances of winning first prize in 4D is 1 in 10,000. 

Chances of winning first prize in Toto is 1 in 8,145,060!

How are the odds more attractive compared to a sure win of $14,000 to $19,200 per year?

Of course, let us not forget the possibility of a dividend income if the money was invested.

Well, he must think I am mental. Many patients in Buangkok Green share his view, I am sure.




"rationalizing foolish conduct, based on your subconscious tendency to serve yourself, is a terrible way to think." 
- Charlie Munger.

Update: 27 July 16

Matthew Seah:

TOTO now got more numbers to choose from..

Click to enlarge and be stunned like vegetable!

Related post:
Investing in stocks makes you a gambler.

Forced selling due to financial hardship.

Vin Diesel, Michelle Rodrigeuz and Gina Carano amazed by the crazy car prices in Singapore!
"Is the moral of the story don't buy cars in Singapore?"

UPDATE (December 2016):
Someone was telling me how it is really tough to make ends meet in Singapore. He was rattling off what sounded like a well rehearsed list but when he said "petrol prices went up", I went:

"You are having trouble making ends meet and you have a car?"

I guess I might have sounded a bit rude. It wasn't by intention. Really. He gave me a dirty look... Anyway...
-----------------------
In recent months, I felt an air of caution and some might even say pessimism in the economy. 

Maybe, it is just me but my observations tell me that maybe the economy is not humming along so nicely.

Are hard times around the corner?

What can we learn from this recent ad to sell a BMW car?

Being financially prudent will help us to become more secure financially. Then, we wouldn't have to fear hard times (as much). 

Although we would not wish for it to happen, hard times could descend upon us quite suddenly. When it does happen, we want it to be good for us.

Be prudent with our expenses and, very importantly, don't fund our consumption with debt.

“When you combine ignorance and leverage, you get some pretty interesting results.” Warren Buffett.

Related posts:
1. Come out on top of a recession (Part 1)
2. Come out on top of a recession (Part 2)
3. A car loan is different from a home loan.
4. From rich to broke?
5. Wage slaves should be fearful.
6. The evil instalment schemes and their minions.