A new year and a new decade. Strategy for 2010.

Friday, January 1, 2010

Firstly, Happy New Year! It's the beginning of a new year and a new decade. Many countries in the world still have huge debts to deal with but let's hope things will be better the next 10 years.

This is extracted from the latest issue of NEWSWEEK magazine:

The American goverment may owe China US$799 billion but when it comes to foreign debt per capita, the US is relatively prudent. Which nationality has the highest foreign debt per capita?

Greeks US$ 27,746
Belgians US$ 27,023
Austrians US$ 26,502
Irish US$ 24,247
Norwegians US$ 21,402
Italians US$ 21,089
Dutch US$ 20,412
French US$ 18,946
Germans US$ 15,574
Finns US$ 13,617
Americans US$ 11,094
Danes US$ 9,410
Spaniards US$ 8,715
Swedes US$ 7,058
Brits US$ 6,526

Now, this puts things in perspective. Many countries are still not out of the woods. This gives the idea that we will see the global economy going into a tailspin again in the next 2 or 3 years greater credence. We are experiencing a cyclical bull in a secular bear market and not the beginnings of a secular bull market.

My strategy for 2010?

1. Gold
I am keeping an eye on the price of gold. If it goes closer to the psychologically important support level of US$1,000 an ounce, I will buy more physical gold as a long term hedge against inflation. Gold also acts as an insurance for my other investments. I buy physical gold from UOB.

2. Crude oil
I believe that demand for crude oil will continue to strengthen through 2010. However, it will not go up in a straight line. It will climb a wall of worries and we will have plenty of worries in 2010, no doubt. I would trade counters which are leveraged to the price of crude palm oil (CPO) as a proxy to the price movement of crude oil. I like Golden Agriculture.

3. Japan
As a contrarian play, Japan might outperform after almost two decades being in the doldrums. I like the Japanese Yen. I like Japanese real estate. I like Saizen REIT.

4. Indonesia
A strong emerging market, Indonesia did not suffer negative growth in 2009. I like LMIR and First REIT for the low gearings and the high yields.

5. Healthcare
There is greater demand for quality healthcare with increasing affluence and an ageing population in Singapore. I choose Healthway Medical.

6. Tourism
2010 will be a year where tourist arrivals balloon in Singapore with the completion of the two integrated resorts (IRs). Looking for value and high yield, I like Suntec REIT and SPH.

There are many other counters which will do well in 2010 but I will concentrate on these I've highlighted. The choices here are based on FA. Remember to use TA to identify entry and exit prices. Good luck in 2010.

22 comments:

Kerry said...: Hi there,
I've been reading your blog for a long while now. Think this is my first post though.

Before anything, let me say that reading your blog has been very helpful. I like the clear, concise style of writing.

I'm just curious about your physical gold purchases from UOB. Could I ask a couple of questions pls?

Are you referring to the bullions or the bars?
Why did you buy physical and incur the premium & not choose to start a gold savings account?

Do you store them yourself or in a safe box at the bank?

Thanks. I really appreciate your reply.

~K; March 8, 2010 at 9:06 AM
AK71 said...: Hi K,

I am happy you like my style of writing and that my blog has been helpful. Thank you for the compliments. :)

With gold, the question to ask is really "Why should we buy gold?" Once you have the answer to that question, you will realise why physical gold is preferred.

Gold is a form of currency and unlike paper money, gold has an intrinsic value. So, we buy gold as a store of value and as an insurance against paper money. The supply of gold is finite while paper money's supply is infinite. So, gold also protects us in an inflationary environment where money supply is easy.

If we start a gold savings account, we don't own the physical gold. We own paper again. We cannot withdraw physical gold from our UOB gold savings account. It's just a number in a passbook. If there is an option to own the physical metal, I would always go for it.

In another post "Gold or Silver?" dated 7 Feb, I suggested that silver might be a better investment than gold. However, in Singapore, it is difficult to have access to physical silver in a regulated manner like gold. So, a silver savings account is the next best thing.

I buy gold for its intrinsic value, not numismatic value. So, I go for the 1oz Maple Leaf gold bullions. These have the lowest buy and sell spread, after the Kilobars.

We should not have to pay GST on gold purchases. Unfortunately, our government, with all its wisdom, does not understand that gold is money. I mean we don't have to pay 7% GST when we change money at the money changers or the banks.

I don't like the idea of paying for a safe box in a bank. My parents have safe boxes in a bank though. So, I get to use them for free. If we do not have free access to such safe boxes, buying a safe to put at home is more cost efficient.

I enjoyed your comments and look forward to hearing from you again. :); March 8, 2010 at 11:59 AM
Kerry said...: Hi AK,
Thanks so much for taking the time to reply. That was well-explained.

I've read Mike Maloney's Gold & Silver but I'm a bit confused as to how inflation in US links back to Singapore.

Just to clarify though, UOB gold price tracks the US price for gold, am I right?

Lets say that their economy deflates and gold price becomes cheaper (is that what'd happen, ?), but our economy inflates (if this scenario is possible), then wouldn't gold price drop and thereby not protect us from inflation here?

Thanks again for your clarification & thoughts.

Cheers,
~K; March 10, 2010 at 1:39 PM
AK71 said...: Hi K,

Yes, UOB's gold and silver prices track the prices in US$ terms.

You have raised a very thoughtful question on how increasing gold price in US$ terms might affect us. I wrote about this before in a post dated 28 Dec 09, "Gold as an insurance against inflation." Check it out:

http://singaporeanstocksinvestor.blogspot.com/2009/12/gold-as-insurance.html

"I'm not overzealous about gold because I am not living in the USA or HK, making US$ or HK$. I am living in Singapore and making S$ which will appreciate against US$ and HK$ in time. This makes gold investment less compelling for me."

I hope the post answers your question. :); March 10, 2010 at 2:03 PM
Kerry said...: Hi AK!

Thanks again. I read your post. Questions again (so sorry for the unintentional "spamming"). If you're quite sure that gold is probably gonna hit US$2,000++, then isn't it still quite a good buy at this time since as you rightly pointed out, it is only half that price currently?

I was wondering too, from what I was told, MAS would be preventing the US$ from dropping below $1.39 exchange rate. So if this is true & the US does inflate its currency, which it already is doing, then this would eventually lead to gold price soaring to keep up with US inflation. As such, then wouldn't we still make a profit as the gold price in S$ would increase as gold price in US$ shoot up? I wonder if my train of thought is correct or are there flawed reasonings?

Much appreciated AK. Thanks! =)
~K; March 11, 2010 at 12:49 AM
AK71 said...: Hi K,

I cannot say for sure what MAS would do as I do not rub shoulders with the powers that be. ;) Would MAS try to keep the exchange rate at or above S$1.39 to US$1? It is possible since our government would want to keep our exports competitive and keep Singapore attractive as a business and tourist destination.

However, keeping our currency artificially weak has negative consequences as well as it would fuel inflation in our economy. Imagine if something that used to cost US$1 becomes US$2 in future due to the overprinting of paper currency in USA, effectively reducing the value of the US$, Singapore would be "importing" the inflationary effects if we keep our currency from appreciating appropriately! Imagine the hardship that would cost our citizens, especially those who do not have any significant ownership of hard assets like real estate.

MAS has to decide on what is a fair value for the S$ over time but I doubt that an artificially weak S$ is the way to go. Furthermore, the S$ is weighted against a basket of currencies. It is not pegged to the US$ which is case with the HK$.

I believe that the value of gold would go up in time in US$ terms primarily due to the overprinting of paper money in the USA. There are other reasons that will affect the value of gold such as reducing supply and increasing global demand, which will have an absolute impact on prices all over the world no matter which country we are in.

Gold remains an insurance which any responsible investor should have in their investment portfolio. It is not very exciting and does not generate cashflow but it is necessary, in my opinion.

Robert Kiyosaki mentioned four types of investments:

1. Business
2. Real Estate
3. Paper (Stocks, mutuals funds etc.)
4. Commodities

To be truly diversified to reduce investment risks is to diversify over 2 or more of these 4 items. It is not about diversifying within 1 single item. For example, buying shares of 10 different companies is just diversifying within item 3. Gold falls under item 4 as does silver.

I hope this reply helps to throw some light on the matter for you. :); March 11, 2010 at 1:41 AM
Kerry said...: Hi AK!
Thx again for the reply. Yes, it helps a lot. I take it that gold is still a good investment for the long term. I guess that's it from me about gold at the moment. You must be giving sigh of relief heh.

Also, yes, agree with you & Robert K. that diversifying into the 4 categories are essential. I've been exploring these 4 for awhile now.

Hmmm, which leads me to some another questions. Would Fine Wine Investing fall under commodities as well or what category does this investment instrument fall under?

As for real estate, REITs do fall under this category yes? What about land banking? I read a previous post of yours that you feel you didn't need land banking as you felt you have enough investment vehicles. But I was wondering your take on the two above - land banking & fine wine investing?

Thanks again!
~K; March 11, 2010 at 10:26 AM
AK71 said...: Hi K,

Haha.. I enjoyed the discussion on gold. Don't worry.

Regarding Robert's 4 catagories, I do not think that being in all 4 categories is essential or even probable for most of us.

By owning a business, Robert is actually referring to big businesses with hundreds of workers, not small businesses where the bosses are still going to work daily in the office. I don't think I will ever own such a business.

Real Estate is already quite a big leap for most of us, especially if you are talking about buying investment properties (ie not the one we are staying in). This, I do.

REITs are actually trusts, they are like mutual funds and unit trusts. So, REITs are paper investments and fall under category 3.

Fine wines, if you really want my opinion, are luxuries. They are not investments but a lot of money has been made by many people in this field. So, to them, it's probably an investment.

As for land banking, you are actually buying raw land in the hope that the price would appreciate in future. Frankly, I do not understand the idea enough to be able to give a fair assessment.

I would say that if you have done thorough research on an investment tool but find that you are still uncomfortable with it, stay out of it. Remember the Mini-bonds. :); March 11, 2010 at 1:16 PM
Kerry said...: Hiya AK,

Thank you pointing out my misunderstanding about REITs & fine wine investing. It's nice to learn from someone who's willing to share.

Also, totally agree with your last paragraph. It's the reason why I'm exploring around. However, I might wind up having analysis paralysis & not do anything in the end haha. No, I'm kidding. I'm vested in gold & silver but they're both with the UOB savings account. And I've been eyeing the physical metal but was told it wasn't worth the added expense. However, I really wanted to understand the necessity of tangible precious metal investing in Singapore before just writing it off altogether and stick to the ETFs & savings account. Thanks again for the enlightenment. I'll look into buying a coin soon, hopefully during the next correction.

As for silver investing, I've been interested and looking to find a way to own physical silver for awhile now. Currently, there seems to be only two companies selling silver in Singapore if you're interested in acquiring the metal. One of which is Mike Maloney's GoldSilver.com.sg & Silver Bullion Pte. Ltd. (silverbullion.com.sg). Unfortunately, what's putting me off is the premium to the spot price. UOB sells its 1oz gold coins at a 10%. Silver Bullion sells its 1oz silver at slightly more than 40% above spot price, so to me that's quite a turn off. GoldSilver.com sells it even more pricey than Silver Bullion so it's not attractive in the least. Perhaps you'd like to check them out. Would love to know what you think of it though, and if it's worth paying the premiums.

As for property, realistically that's going to take awhile. I realise I'll probably have to grow my capital first before stepping into this area despite its allure. I wonder how you got started though? Would love to follow in your footsteps regarding real estate one day heh. It would be a great achievement. =)

Have a great day Ak!

~K; March 12, 2010 at 12:04 AM
AK71 said...: Hi K,

Yes, get some physical gold. The price UOB charges is fair. 7% is GST. So, they make 3% from us. That's ok. 40% premium for physical silver from the two companies you talked about is more than a turn off. Yes, I've heard of them and, no, I'm not willing to pay that much of a premium.

I wrote to a couple of US companies selling physical silver but they replied saying they do not export. It's a pity as they offer very good prices.

Investment in real estate is a biggy. Another reader, RL, asked me a question about this before. You might want to check it out:

http://singaporeanstocksinvestor.blogspot.com/2010/02/seven-steps-to-creating-passive-income.html#comments

You're doing the right thing. All in good time, I always say. :); March 12, 2010 at 12:19 AM
Kerry said...: Hi again AK!

Wow you're up late too. Guess you're a late sleeper like yours truly heh.

Thanks for the link. Read through the post before but the comments, ah, now that was new, and very informative too. Hmmm, what's the set of guidelines do you use to choose your REITs?

Oh going back to gold, I'm sure that everything has its price to sell, and unless I assume wrongly, gold included. When do you think you'll divest yourself of this precious metal?

Also I know you said you're not overzealous over gold, but to clarify, just as you accumulate on weakness when it comes to your stocks and REITs, would you accumulate gold too during the corrections?

Despite the troubles of obtaining physical silver here in Singapore, there are some online silver storage websites, where you obtain and store the metal with them, Bullion Vault (www.bullionvault,com) being one of them. However, I found that GoldMoney.com seems the most attractive. Besides having the lowest spread (2-4% premium), the accountability (audit) and founder of the company adds to the reliablity that they're not a scam. It was also recommended by Mike at GoldSilver.com as well as David Morgan. Why not considering obtaining your silver from them instead?; March 12, 2010 at 12:54 AM
AK71 said...: Hi K,

I know late nights are bad for me and I will try to sleep earlier in future. Once upon a time, I used to sleep before 11pm every night.

How to choose REITs? Check out this post:

http://singaporeanstocksinvestor.blogspot.com/2010/03/high-yields-successes-failures-and-in.html

Yes, I will be a seller of gold one day. When and at what price? Honestly, I don't know yet. When the time comes, I'll know. Keep an eye on the charts.

I will buy more gold if it goes closer to US$1,000 an ounce. That's an important psyhological support for the metal.

Someone told me about silver storage services too. You keen on these? I'm not too keen. I want to store my precious metals where I can see and feel them. I'm old fashioned. ;); March 12, 2010 at 1:05 AM
Kerry said...: HI AK,
Thx for the reply.

Yes I read that post too previously when I was exploring your blog.

However, isn't just checking the discount to NAV, low gearing & high yield a bit simplistic to decide that the REIT is worth investing in? In a radio interview on 91.3FM, the speaker did mention the 3 points as well but included tracking management's track record. Also, I thought that the famous mantra of "location, location, location" would be something of importance to look into as well?

I'm wondering though, exactly how high a yield do you consider worth investing, 10%? 15%? And how much of a discount to NAV would you then consider investing into an REIT?

Heh, as for silver, I know exactly what you mean hence I haven't invested in any foreign holdings to date despite the temptation to do so.

Hope you had a great weekend AK.

Cheers,
~K; March 15, 2010 at 1:23 PM
AK71 said...: Hi K,

For sure, there are many things we can look out for before making an investment in REITs. However, what we MUST look out for are yield, gearing and NAV.

We could consider other factors such as the manager's track record you mentioned (in which case, we should avoid CIT) if the REIT has been around long enough. Some people also consider whether the REIT has a strong sponsor as this would have implications when REITs try to raise funds or look for new yield accretive purchases. As for location of a REIT's properties, sure, that's important too but that depends on your understanding of economics as well. For example, some people do not want to invest in Saizen REIT saying that its properties are in Japan. That's somewhat superficial but I've blogged about Saizen REIT extensively. So, I shan't say more.

My investment objective in REITs is to secure a regular passive income at the right price. Yield? Higher the better. Discount to NAV? Higher the better. There is no exact number. Everything is relative to what is the next best. At the moment, about 10% yield is probably the best we can find in the S-REIT universe (with the exception of CIT but its gearing is >40% and, by my standards, not eligible for consideration). As for discount to NAV, I like the following: Saizen REIT is the highest at almost 60%, followed by LMIR (>40% discount) and AIMS AMP Capital Industrial REIT (>30% discount).

So, you investing in REITs soon? ;)

Have a great week. :); March 15, 2010 at 2:27 PM
Anonymous said...: Hi AK71

I just came across a comment with regards to First Reit as follow:
"However, for First REIT you might want to take a look at the implied forex risk from the viewpoint of a Singapore domiciled investor. For example, you can probably get much better than the 8.67% yield if you could take your S$, convert to rupiah and take a one year FD in Jakarta. But you would worry about the rupiah devaluing.

If you think the rupiah will be stable, your investment in First REIT, allows you an easy way to tap the higher interest rate prevailing in Indonesia"

Do you then consider that Rupiah devaluing is a "risk" to choosing to buy this REIT ?
And sometimes ago, if i remember vaguely, the earthquake also almost destroyed one of the hospital building, but at the end of the day, it is still a false alarm.
Given indonesia as an political unstable country with risk of rupiah devaluing and its geograhical location in the earthquake line, is this REIT still view as good buy ?
I wanted to invest on this REIT but still have this doubt not clear yet.
Appreciate your advise. Thanks; March 15, 2010 at 4:28 PM
Kerry said...: Hey AK!

Thx for the wishes! Yeah, I'm having a great start to the week. Off day you see haha. And off on Thurs & Fri too! Yeehaw! =)

Yeah, I'm invested in AIMS AMP Cap Industrial REIT at the moment. Bought a couple at the lowest point, 20c. No regrets despite everyone some claims on other blogs that it'd drop to 15c. And anyway, I thought that even if it should drop to 15c, I'm investing in it for passive income and not capital gains.

Have been eyeing LMIR & FIRST REITs for a long while but since I'm saving up for some other investment, I've been putting em on the WILL DO list heh.

I'm also invested in FSL, small amount too, and only went in after the big hooha & drop in share price. Am looking to sell that lot away. Don't really like the gearing. Good yield though. Which leads me to agree with you about CIT. I don't like it. The management (whassisname) jumped ship from AIMS to CIT and still the gearing in CIT is like crazy. Haven't learnt from their mistakes. Hoping to increase my holdings in AIMS too btw. I'm curious about Saizen though. I agree that their yield's good. But their gearing seems quite high, at 43.5%, according to SGX REIT Data.

There are some other REITs that stand out in terms of quality but at current price, they're not worth it, example FrasersCT & K-REIT. Hopefully in good time, their share price'll drop too. What's your take on em btw?; March 15, 2010 at 7:09 PM
AK71 said...: Hi Anonymous,

Before I answer your question, I would like to say that there is a difference being invested in a business and being invested in a currency.

If you take S$, convert into Rupiah and put the money in a Rupiah FD in an Indonesian bank, you are investing in a foreign currency. Of course, you would be exposing yourself to currency fluctuations with a lock in period to boot.

Now, if you are invested in First REIT or LMIR for that matter, these are trusts which own real estate in Indonesia. As a unitholder, you are part owner. Their income is in Rupiah and is distributed to us in S$. So, our income is exposed to currency fluctuations. However, investing in a REIT is more liquid than putting money in a FD. You could sell your units easily in the stockmarket without a lock in period.

As for the risk of Rupiah devaluing because Indonesia is a politically unstable country, almost every country has a troubled past, including China and Korea. Thailand was doing quite well until the last few years. Now, Indonesia is more stable than Thailand, in my opinion.

What we must remember is that we are investing in the present and for the future. Susilo Bambang Yodoyono (I hope I did not mispell his name) has done well and Indonesia has done well under his leadership. During this last crisis, Indonesia did not go into a recession. In fact, after China and India, Indonesia was number three in economic growth in the last crisis.

I like to think I know Indonesia a bit better due to my line of work. It is a rich and prosperous country, full of potential. Do you believe me if I tell you Singapore would not be doing as well as it is doing today if not for the Indonesians consuming the goods and services we produce here? :)

First REIT has low gearing (about 15%), high yield (> 8%) and >10% discount to NAV. This is a REIT one would purchase for the yield and low gearing, not for value at this point in time.

As for earthquakes, nothing much we can do about it, right? Just have to hope for the best. :); March 15, 2010 at 9:46 PM
Anonymous said...: Hi AK71
Thank you so much for sharing your view on my doubts. In fact, i am currently looking at REIT that can give me passive/portfolio income. That is to say, i will keep all the REITS that i have bought so far for long.
I am currently owing 10 lots of Parkway Life REIT also. However, if compared to dividend yield, FIRST Reits will of course give better yield. Hence, now thinking of my next buying counter....
Thanks alot AK71.; March 15, 2010 at 10:00 PM
AK71 said...: Hi K,

20c for AIMS AMP Cap Ind REIT is a good entry price. You did the right thing to ignore the noise and made a decision based on sound FA. If it did go to 15c, I would have rolled out all my warchests and just dumped all my money in the REIT. ;)

The ex-CEO of MI-REIT who jumped ship and joined CIT? Chris Calvert (the clown). The fiasco in which he tried to take over MI-REIT cost CIT an arm and a leg. Waste of good money. Idiot of a man.

As for Saizen REIT, the information in SGX REIT Data is probably outdated. You might want to read my latest post where I did a more detailed FA on the REIT, some of it in the comments in answer to questions from readers:

http://singaporeanstocksinvestor.blogspot.com/2010/03/saizen-reit-march-2010-presentation.html

Frasers CT and K-REIT? Frasers CT is trading at a 10% premium to NAV with a yield of >6%. I think it is fairly valued. K-REIT is trading at >25% discount to NAV and has a yield of about 6%. Even though I do not like office real estate due to an oversupply situation that will likely get worse at least for the next couple of years, the very low gearing that K-REIT has makes it interesting as it could probably make yield accretive purchases and bump up its yield without further cashcalls.

However, a bird in hand is better than two in the bushes. I rather go for what is more certain than to speculate on what could happen. I have my hands full at the moment. ;); March 15, 2010 at 10:05 PM
AK71 said...: Hi Anonymous,

As REITs are primarily income intruments, yield is a very important consideration but it should not be the only consideration. Personally, I do have a preference for First REIT to Parkway Life REIT. :)

Although the idea is to keep REITs for long term passive income generation, this last crisis taught us that things could get pretty crazy and at one stage, First REIT's unit price dropped to under 40c. I steeled my nerves and bought some at 42c.

What am I trying to say? Treat your investments in REITs like any other investment in the stock market. When things look toppish, it might be a good idea to start considering an exit strategy. Buy again when things look bleak and prices hit new lows. We would grow our wealth much faster this way.

Good luck in planning a stronger passive income stream from REITs in the meantime and thank you for visiting my blog. :); March 15, 2010 at 11:39 PM
Anonymous said...: For LMIR, they hedge their rupiah against S$. Please read their Financial report.; March 16, 2010 at 10:44 AM
AK71 said...: Dear Anonymous,

Thanks for highlighting this. Many businesses hedge against the risk of currency fluctuations to ensure a level of predictability. Hedging requires some savvy as it is a double edged sword. Since we are after stability in income distribution in REITs, hedging is a good idea most of the time.; March 16, 2010 at 11:31 AM

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