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Should we be staying invested or in cash?

Sunday, August 14, 2011

All of us know how pathetic interest rates on savings are for quite some time now and with the U.S. Fed pledging to keep interest rates low for another two years or so, it does seem as if low interest rates are here to stay, even in Singapore.

We also know that the ultra low interest rate environment is pushing up prices of almost everything. Inflation? You bet. Is this going to persist? It certainly could. If it does, then, my decision to sell my properties in recent months might not be that brilliant after all.

However, if we remember basic economics, we will recall that prices are a function of supply and demand. With many more new homes to be completed from 2012 to 2015, we could very well face a supply glut in future. This is probably quite well documented by now but I will run through the numbers once more:

Year 2012: 
15,457 new homes to be completed.
Year 2013: 
17,111 new homes to be completed.
Year 2014: 
21,680 new homes to be completed.
Year 2015: 
22,520 new homes to be completed.
We should also bear in mind that, currently, there are still more than 30,000 completed homes unsold.
(Sources: URA, DTZ and Nomura.)

As long as demand remains strong, the supply could be well-absorbed. This would depend on the state of the economy and the level of confidence amongst buyers, of course.

To add to the supply glut concern, the very well publicised recent decision by the government to build more HDB flats and to build them faster is likely to weigh in on the matter. Read HDB has promised 25,000 more new flats next year, based on what it said the construction industry can handle.

So, when people ask me for my opinion on whether it is a good time to buy that investment residential property in Singapore, I usually would reply in the negative. However, when people ask me if it is a good time to buy their first home, that is a bit trickier. It really depends on how urgently they need that first home. Sometimes, if we have to pay a premium, we just have to do it. Who knows? Price could keep going higher although I do not think it likely through 2015.

What about me? I get the sense that many readers are wondering what I am going to do with the cash that will be coming in from the divestment of my properties. To be quite honest, I am not going to keep too much cash in my savings account for too long as inflation would rapidly erode its value. To that, some might say that because they are in cash, their cash is now able to purchase many more shares than it could a month ago. This is certainly a valid point as well.

So, what to do? I must have said this a few times before but there is no other option for me than to stay invested but have a war chest ready. We want our money to work hard for us. At the same time we want our money to be able to purchase more shares at lower prices. Why? So, that our money could work even harder for us. Therefore, in the final analysis, whether we stay invested or in cash, the objective is the same: to make our money work for us.

While I was holidaying this weekend, I noticed that I have a lot more white hair. Family and close friends know that I think a lot. I think I think too much. ;)


Singapore Man of Leisure said...

I not sure how to do it, but I find having some white hair at the sides looks cool.

But the best must be Tony Tan's before his hair went all white. He got a streak of white in the middle like Rogue from X-men - now that super cool!

Wishing you a cool head of hair! Whatever colour that might be :)

AK71 said...


I have had a shock of white hair above my right temple for many years now. It is strange to have a concentration of white hair in that one location, isn't it?

However, this weekend, I noticed much more white hair scattered liberally on my head. Can't be helped, I guess.

INVS 2.0 said...

Hi Ak71,

Cash is always champion in times of difficult times. I do prepare two types of cash - one for emergency purpose (in case I am retrenched), and another one for stock shopping purpose. But keeping too much is not good, it will be eroded by inflation as you mentioned.

Anonymous said...

welcome to the "some white hair" club



AK71 said...

Hi INVS 2.0,

It seems that we are employing the same strategy. :)

AK71 said...

Hi SnOOpy168,

I think I have been reluctant member since my days as a JC student. Nothing I am proud of, actually. ;)

Anonymous said...

I think white hair looks pretty cool actually, gives the more 'intelligent' look haha...


AK71 said...

Hi Blackjack,

I do not think I look smart, whatever the color of my hair. Haha.. ;)

mark said...

which is worse. balding, or a full crop of white hair?

bald maybe? Save money on haircuts and shampoo?

financialray said...

I think we are at the crossroads now when buying shares comes with heightened risk and one major decision could set us back in our journey to financial nirvana.

In my humble opinion, residential could have peaked. I agree with what you advise. Consider buying only if you buying for owner occupation.

Over the weekend, I attended a free seminar by a property agent who apparently often appears in the media. It is about investing in commercial/industrial properties. The speaker painted a rosy picture for commercial/industrial properties but did not highlight how to mitigate the risks. Apparently need to pay about 2k to attend 3 evening lessons. There seems to be many people with cash but unfortunately, they do not know what to do. Needless to say, I left without signing up.

AK71 said...

Hi Mark,

Are you Mark Mobius, the head of Templeton (pun unintended)? ;)

Being bald gives the person an ageless quality. Quite good if we don't want people to know how old we are. ;)

AK71 said...

Hi financialray,

Wow! Before even investing any money in any real estate, these people would have to part with $2K first to be taught how to do it? Mind-boggling! I think they should have done what you did. ;)

There is a strong case for industrial properties in Singapore as rather rewarding investments. However, I am not so sure about commercial properties as there seems to be a lot more supply coming online.

Potential investors should do their own legwork instead of relying on such seminars.

financialray said...

For industril properties, I believe the best way to own them is via REITs. In that way, no leveraging is done and the investor can get out fast should the economy takes a sharp turn. Owning one physically is too high risk unless we have a use for it ourselves.

Commercial properties I think are not easily available nowadays, at least not those shops in good locations. I am not too sure about offices as I do not invest in them.

Paul said...

I find myself a little amused that of the 12 comments, 10 were about white hairs! :)

The scary thing about all these crazy building is that the underlying assumption that our economy remains rosy with strong growth. And that is by no means a certainty.

What happens when the economy dives? All the demands disappear! And its 2002-2003 all over again. And when that happens, a certain Mr. Mah would be looking smut on the sideline and says 'I told you so!'

The no of land parcels sold around where I stayed (in Sengkang) is mind boggling. It seems like every few weeks, I see a sign 'Land for sale' followed by 'SOLD' a few months later.

I think another property bubble is inevitable. Just nice for the next GE and guess who's gonna be the boggieman all over again. :)

AK71 said...

Hi financialray,

Investing in any industrial S-REIT is still exposing ourselves to some form of leverage but at under 40%, it is relatively less risky compared to buying a warehouse building with 80% leverage, for example. :)

AK71 said...

Hi Paul,

Goodness gracious, great balls of fire! Really? Most of the comments were about white hair?

It would seem as if my last paragraph created more impact than the entire blog post! ;p

You find the frantic pace of building scary? I find the frantic pace of buying scary! Be fearful when others are greedy. :)

Hwang said...

Don't think white hair = aging.

I am in my late 20s .. and i have got white hair randomly distributed on the left side of my head. Think too much, or study too much is your guess :P

Don't mind a bit of white hair, but i prefer them to be evenly distributed around my head. Haha...

AK71 said...

Hi Hwang,

I think white hair comes with age. I am sure you have more now than you did, say, five years ago. ;)

financialray said...

For all those concerned about whilte hair, I keep seeing this ad on Channel 8 about this Japanese brand of shampoo that is used to dye white hair black. ANyone tried yet??

AK71 said...

Hi financialray,

I will accept white hair as a part of my life. Haha.. I won't ever spend money on such products. A waste of money, I feel. ;)

san said...

Hi, AK71 and white hair club,

You may want to try an inexpensive way to treat your white hair:

Or you can just eat more black sesame which is good for health.

AK71, just wondering whether you have ever cut loss before or you just hold on during market down time, esp. 2008? if you are willing to share as you have been in the market for so long?


AK71 said...

Hi sanmuzi,

Thanks for sharing the formula. ;)

Before the last bear market, I was a FA only guy. So, I held onto my investments as they were sinking in prices.

Thankfully, I had reserves and I went loading up on heavily sold down shares of companies which I thought had good fundamentals which could ensure that they would continue to do well even if the bear market persisted.

Sectors I was heavy in were water (HWT at 30c and Epure at 20c), crude palm oil (Golden Agriculture at 29c), Indonesia (LMIR at 18c) and healthcare (First REIT at 42c and Healthway Medical at 10c). Most of these investments have been divested except for LMIR, First REIT and 5% of my original investment in Healthway Medical.

We can have all the FA and TA but if we do not have the funds to take advantage of sell downs, it would be a waste.

chnrxn said...

Regarding the part about paying for the property seminar, I think it is a very personal thing.

Aren't we also paying school fees for an education before getting a job?

If you are not already interested in property investment, then the seminars will be a waste of time and money.

Of course one can pick up the knowledge on their own over time, but time is something most of us with a full-time job have in scarce quantities.

Good seminars and courses can help you to focus your learning to make it more effective. If one is really serious about long term property investment, then what is a couple of thousand dollars to gain the knowledge quickly?

I leave with a popular quote: "if you think education is expensive, try ignorance".

AK71 said...

Hi chnrxn,

Thanks for sharing your view.

I am a firm believer in education. However, I believe that there are certain things which we can pick up on our own.

I have not paid a single cent to attend any courses in investment, be it the stock market or real estate. So, I am always skeptical about such courses.

Having said this, good courses could very well shorten one's learning curves. So, the trick is to find good courses. Otherwise, we might end up still ignorant and poorer. ;)

financialray said...

We have to know whether the course is suitable before we sink in our hard earned cash. These courses are not cheap, a few k for only 3 sessions at most. We pay for a formal education and I believe the fees are quite transparent for any big educational institution in SIngapore.

I have an interest in property investment. Otherwise I would not want to waste my precious Sat afternoon sitting there. My advice is for those starting to invest to open their eyes wide and not just sign up for any courses.

Lastly, we cannot use the excuse that we are busy and so save time via these courses. For property investment, if you do not spend time doing research, one mistake can cost you dearly.

They will also tell you to sign up by telling you another maxim : "You think you know, but wait till you find out there are many things you do not know."

I agree with AK that there should be formal financial education to conduct good courses. At the moment, these property investment seminars, financial freedom courses, how-to-be-millionaires program, forex courses etc are all not regulated.

ET said...

It's a chicken and egg scenario, to spend for course on a subject or to jump in the subject, learn and experience.

I took a short 5 days course to learn option trading in US market, paid a good 5k for it.

Did a few weeks of paper trades, follow by real trades. Was successful for the 1st few, then it starts tumble down, making losses and more loss.

Then I start reading books, learn the market, understand the strategy, find the fault of the strategy, retune, test and retune.

After a year of doing real trades, paying close to usd10k per year for brokerage fee. Made 7 consecutively profits ranging from 5-70% in April this year.

Make a huge loss in June, later refine the strategy, test n learn the market, restrict myself from being emotional, read more books and applied the theory.

Recently a consecutively 49%, 20%, 50% on 17/8 and 100% profit on following day.

Its the course which helps me or the persistent learning after falling? It's both, the sparks and fuel.

I am in my mid 30s, staying in Singapore.
Although limited on capital, maybe someday investor will come give a helping hand to boost my venture. Helping me, helping him.

AK71 said...

Hi ET,

Thank you for sharing your personal experience. It is very interesting. :)

Personally, I have not attended any courses on investments in any form. I have always preferred learning on my own through reading and doing. I guess it's just different strokes for different people. :)

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