SRS portfolio in 2024. What did I do?

SRS was a topic I used to blog about pretty often.

I have not been blogging about it as much since I have not been making contributions in recent years.

Reason is because I no longer pay income tax.

See:
Income Tax payable?

If we are still paying income tax, contributing to our SRS account makes sense to enjoy some tax relief.

Of course, we want to put our SRS money to work or we would get a very miserable interest rate.

For many years, I used the SRS money to buy plain vanilla endowment policies.

They were savings plan with some insurance thrown in.

In fact, I still have one or two of those with NTUC Income using SRS money.

In recent months, I also used the money to buy T-bills with yields being so much higher than a couple of years ago.

Dividends paid by my investments in stocks using SRS money are used for this purpose.

Yes, I also use SRS money to buy stocks of businesses which I think make good investments for income.

I have blogged about this before and shared what kind of stocks I would buy with SRS money.

Basically, the businesses must be good income generators with strong balance sheets; nothing which is likely to do rights issues.

The very practical reason is because we must have the excess funds in our SRS account to take part in rights issues.

This can be difficult to ensure.

I shared my SRS portfolio of stocks before but that is outdated by now.

See:
Win and win again with SRS.

I had SATS in the portfolio.

Of course, regular readers would know that I sold it shortly after it announced the decision to buy WFS.

SATS just didn't have sufficient resources to do what they suggested.

They had to raise funds from shareholders.

It was something unexpected.

So, I took the opportunity to sell when there was a bounce in the stock price.

In place of SATS, there are ComfortDelgro and OCBC in my SRS investment portfolio now.

This is what the portfolio looks like now:

Based on the purchase prices, it is not difficult to guess that DBS and ST Engineering have been in the portfolio for some time now.

So, like what I did?

Paid less income tax and put the money to work to generate more tax free passive income?

We can certainly win and win again with SRS.

If AK can do it, so can you!

Reference:
How AK used his SRS money?

ComfortDelgro or SIA? Special dividend!

 This has been a crazy week in real life while virtual life has been somewhat placid.

Still waiting for Genshin Impact's new nation with the element of Dendro to go live and also waiting for Neverwinter's new mod.

It is partly my fault for going through new gaming content as quickly as I do but I am a full time gamer first and a retiree second.

What to do?

So, I have been playing RISK a lot online recently!

Yes, I was surprised to find that I could play RISK online with people around the world and it has been pretty amazing.

Anyway, with real life matters demanding a lot more attention from me this week, I didn't have a lot of time to read the news.

Catching up.

Today, I am happy to read that ComfortDelgro is recovering nicely as expected.

First half profit is up significantly and even the taxi business reported an increase of 18% in profit.

There was a one off gain from a sale of asset and the company is going to pass the gain from the sale to shareholders.

What I like about this is that it will be a standard practice from now on.

An interim DPS of 2.85c and a special DPS of 1.41c were declared.

ComfortDelGro chairman Lim Jit Poh said: 

"The group is in a fortunate position to have a strong cash flow and be in a net cash position. As such, we do not have any problem funding our dividend payouts internally. 

"With the exceptional gain from the sale of the Alperton property in London, we have decided to pass on the net gain from that sale to our shareholders. This is something we will continue to do going forward when we make extraordinary gains and have no urgent need of the proceeds."

Source: The Straits Times.

This reminds me of the reason why I bought ST Engineering donkey years ago.

ST Engineering, flushed with cash, didn't need to retain any of their earnings and simply paid all their earnings to shareholders as dividends, year after year.

See: 

Mystical art of wealth accumulation.

Some people ask me if I would consider investing in SIA now that air travel is improving and we could see traffic returning to pre pandemic levels in the next couple of years.

It is good to see that things are improving but it is also important to remind ourselves that SIA is heavily in debt and it will take them more time to fully recover.

How much time?

Definitely not out of the woods yet and SIA still has plenty to be concerned about.

Air traffic might return to pre pandemic level in the next couple of years but for SIA to fully recover, I suspect it would take many more years.

Of course, if something untoward happens and the economy plunges again, would we rather be investing in businesses that have strong balance sheets than those that do not?

Peace of mind is priceless.

With past crashes, not many people could tell what would be their triggers.

With all that is going on in the world recently, it is not as hard to see what could trigger the next big crash.

Troubled is the world today.

Still, it would be silly to do a Chicken Little and just sit on cash.

I am staying invested in bona fide income producing businesses and preferably those with strong balance sheets.

I am also keeping some powder dry just in case and, of course, I have an ultimate safety net, my CPF savings.

In my retirement, I am not going to be too adventurous.

Recently published:
Inflation, passive income and budget.
References:
1. SBS Transit and CDG.

2. CDG: AK replies...

3. Investment in CDG is larger now.

STE says to see crises as opportunities and accumulate.

I am happy to publish another blog post by a fellow investor and one of ASSI's more prolific guest bloggers, STE:

“Creative Destruction”
and
The Business Cycle

“Millions saw the apple fall, but Newton was the one who asked why.” By Bernard Baruch .

 “The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” By Seth Klarman

We have seen market move and swing viciously since mid of last year due to event such as “Yuan devaluation “ , “Oil and Emerging Market crisis “ , “ China’s Debts and Shadow Banking issues”  and the recent one “ Brexit “.

All these event has created huge market volatility and because of investor’s psychology swing together with these market news … we have seen the index swing up and down wildly.

One need to always remember that “"Psychological create 90% market”as quoted by Andre Kostolany.

Whatever things involving “people “ … it tends to be “ chaotic and messy “ , for me .. stock market looks like this :

Nowadays, Stock Market became more intricated and complex due to fast moving news by click of second and much intergrated / connected world by IT revolution in recent years.

News move in Nano-second and always being “magnify “to attract viewers’ attention or increase subscribers …

     

Some of the event may have long term impact on the market but some are just “ noise “ which affect the stock price in short term … but even for those major event , remembered that market always move in cycle and “mean reverting “ eventually .

Joseph Schumpeter, an “Austrian Economics “ coined the phrase of  “ Creative Destruction “ and also written great books like “ Business Cycle “ / “ Capitalism ,Socialism and Democracy “.

According to him , “Creative Destruction is the essential fact about capitalism “ and he gave example like “ blacksmith  being wiped out by factory , the car superseded the horse and buggy, and corporation overthrew by proprietorship “..

And by Wikipedia , according to Schumpeter, the "gale of creative destruction" describes the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one". If  you are interested on “Austrian School of Economic thought” , you may refer to this link ..   ^{https://en.wikipedia.org/wiki/Austrian_School  and further reading on works from “Austrian Group of Economist like}  Ludwig von Mises  and Friedrich Hayek .

Same for other crisis , eventually , people will need to move on and market will not even remember those crisis e.g Oil crisis in 70s , Asian Financial crisis , Dot-com bubble and the latest GFC caused by Housing bubble .

Look at above chart on Dow Jones since 1884 ,, market gone through many cycles and even with 2 “world war “ and various bubble & panic .  GFC in 2008 may become insignificant if we look at this chart in long term …

BUT ,,, one may argue that as investor ,, we may not have such longer time to go through the market …well , that’s fair enough !! One may need to look at shorter time frame and react to our own investment cycle / need accordingly.

For me , as per previous blog post , I will only use one chart  and react to it accordingly to adjust my portfolio allocation from time to time. That’s the “ Linear Regression Chart on market and Mean Reverting concept “ , by doing this , I hope to avoid buying high when market is in “euphoria “ and taking advantage on situation when market is in panic and over-react.

As rules of thumb , we must also avoiding those “highly speculative and  hot stock “ in the market and be realistic to our “ expectation of return on investment ”.

Also , as I mentioned before on the “Fallacy of Indexing “ … when we talk about long term index return of 8-10% … it is base on average  of very long time frame … in shorter time frame ,, index could swing by +/- 20-30% easily .

There is also “ survivorship “ biases on the stock component in the index… for those stocks who have destroyed by business cycle and lack of innovation (e.h NOL/ Noble ) been taken out from Index and new one being added . I guess this is also part of the process of “Creative Destruction “. When the old one being destroyed and disappear in the Index , the new one being added and continue to create value for the Index. 

“ Crisis = Opportunities “

If we look at  Singapore’s context ,,, market has also gone through many cycles with up and down … if one could take advantage on one or two of these crisis ,, it could really shortern our time to achieve F.I.R.E.

< I have not added the latest event on BREXIT ,,, it may turn out much more serious or may not in the list at all … it is anybody’s guess . I think>

< Credit goes to one of the bloggers who have created this table , which I have forgotten from where I got this >

For the past 20 years , market have corrected more than 9 times which have resulted negative return of -20% to -62%. This is to show that how often and crisis prone our market is.

“ Linear Regression and Mean Reverting “

My investment strategy for coming years remain the same …where I will take advantage when stock index gone down to 2500 level +/- and start to accumulate war chest again when stock rebound from that level .  Please ensure to keep some cash buffer if index went down to 2200 ( which is equivalent to crisis level in 97/00/08 ).

As mentioned earlier , market will be much more  volatile due to “flooded liquility “ couple with psychology effect due to “market NEWs ( noise ??)  “ .

Let’s tighten our seat-belt and ready for this “bumpy ride “ !!!

< Dividend update >

"Do you know the only thing that give me pleasure ? It is to see my dividend coming in …" John D Rockefeller

YES! This is most important event for investors who have invested for “passive income “ ….regardless of market volatility ,,, dividend income continue to flow in …

Total dividend collected for  1^st Half 2016 = $102,426 .  (my methodology of calculation is different from AK as I did not include the privitazation return from Saizen as “dividend “ ,, instead , I would treat them as “ return of capital “).

** Total dividend increased substaintialy in 2 Qtr 2016 due to more investment in 1^st Qtr 2016 on some of the blue chips by taking advantage of the market turmoil during early 2016 . Also, partly contributed by better div from Accordia Golf Trust.

Lastly , allow me to re-quote below which I have quoted before : by Warren Buffet in 1999

Stock have always come out from crises “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

After year 2000 , stock market have experienced another 2 major crises i.e Dot-com Bubble in 2000 and GFC in 2008 … but yet .. Dow Jones stand at above 17,000  while watching at the episode of BREXIT crisis unfolding .

Happy Investing and stay focus on your Long term Investing strategy, hope & wish all could achieve F.I.R.E soon!!

Cheers!!

---------------------------------
AK:
"What does F.I.R.E. stand for? Make a guess. I did and got it right! I so clever. Ya, I know. AK is so shameless! Bad AK! Bad AK!"

Related post:
STE's investment strategy.

Tea with STE: How I stage and apply my war-chest in current volatile market.

This is another guest blog from fellow early retiree, STE:

 

I guess everyone would have their own strategies or methods to use their war-chest in hoping to get the best return from the market.  Since our “war-chest “ is quite limited , sometime we may face the problems of using up the war-chest quickly and seeing the share price keep dropping from the last purchased . Here , I’m not trying to promote the “market timing “ in hoping to get the lowest price before market swing upwards. I always think that “time in the market “ is much more important that “timing the market “ as we may see the power of compounding if we stayed long enough in the market .

But remember ,trying to “timing the market “ in short time frame e.g days , weeks or even months … is speculative in nature rather than investment .  What I am trying to explain is more on ‘spotting the stage of market cycle “ in much more longer time frame to increase our “odds “ in winning the market .

Can we really catch the “bottom “ of market ? My answer is definitely NO .  As I mentioned before , nobody will be able to tell you where will be the market heading in coming months or when will be the “bottom “ of the market . Investing is about “probability not certainty “ , we can’t tell where the stock market will be performing in months ahead  but we may be able to use valuation base on “statistical terms “ in estimating the current market cycle and base on that to calculate the odds of winning the market in our bet .

In general , we may be using different types of methods in applying our war-chest ,, some may be using 52 weeks high-low or fundamental valuation of PE / Div Yield / PB value etc.

Each strategies having their own merit since there is “ 100 ways to skin a cat “ ..but sometimes , in such volatile and irrational market ,,, price can be lower than 52 weeks ( this is problem of “anchoring the price “ ) ,, and valuation base on Div Yield may appear if price dropped drastically e.g case of Noble or Semcorp Marine for low PE…

For me , I would look at “market valuation “ and then mowing to “stock selection “ ie from “macro to micro “ kind of analyses . I will be using the “trend analysis “ which shown the long term trend of index by plotting the chart using “linear regression “ concept . If you still remember , I have mentioned 2 very important concept in my previous post :

//quote//
My investment philosophy is simple. We only need to know two things:

1) Margin of safety
2) Mean Reversion

// unquote//

Market always move in cycle and reverting to mean , using “linear regression “ , we may plot a long term “trend line “ of any stock index and by using the trend line , we might be able to see the current stage of market in long term “market cycle “.

Please refer to these link to understand more about :

< Linear Regression >

http://www.investopedia.com/articles/trading/09/linear-regression-time-price.asp

< Mean Reversion>

http://www.investopedia.com/terms/m/meanreversion.asp

 

Such trend analysis also being used by few prominent investors/ bloggers e.g Prof Chan Yan Chong in his so call “ Chan Channel “ .

 

Now , let’s look at the “ Linear Regression “  trend chart  base on data downloaded from Yahoo Finance : since 1987 .

 

Note :

Red line represent the long term regression line for STI index.

Green line represent the +/- 1 SD from the regression mean ( covering about 68% of the market price swing )

Yellow line represent the +/- 2 SD from the regression mean ( covering about 95% of the market price swing )

One may notice that , in the long run ,, the trend line will be in upward trend and this represent the market value increased due to increasing economic activities / company business expansion which eventually translated into profit and price .

Base on this chart and statistically speaking , I should be more “aggressive “ in applying my war-chest when index hit “green line “ or -1 SD at around 2500 level and be “very aggressive “ when it hit 2200 level at yellow line ( -2 SD ) .

Well , these two lines is not the “definite “ bottom … as quoted below :

 “Markets can remain irrational longer than you can remain solvent.”
By John Maynard Keynes

 

For sure , nobody know and Index can go below 2200 , but that will be the time where “value “ appear when market been beaten down a lot with “fears and panic” all over the news and TV .

“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.“ by Warren Buffet.

Easier said than done , we really need good discipline and patience in such volatile and uncertain market .

Investing has always been tied to emotions same as shopping, eating, and other areas of decision making. But if we can understand these impulses and use emotions to our advantage, we might be able to shorten our journey to achieve financial independence.

I am using my war-chest by applying the buying strategies base on above to increase my “odds “ in winning the market .. how about you ?

Remember, stock have always come out from the crisis, and again , quoted below from Warren Buffet and time will tell the story eventually ….

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
- Warren Buffet

 

 

Disclaimer :

Any stock or strategies mentioned in this article is just meant for illustration purposes and not recommendation to buy or sell. Readers are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, readers are advised that past stock performance is not indicative of future price action.

You should be aware of the risks involved in stock investing, and you use the material contained herein at your own risk. 

STE: "I lost money enough to buy a 5 room flat in 2015!"

I always enjoy reading STE's very thoughtful guest blogs. Regular readers would know who I am talking about.

If you are new to my blog, you might want to read STE's other guest blogs as primers. You will find his name in the left side bar of my blog under the heading "Guest Bloggers".

Here is STE's latest contribution:

Honey, I lost a 5 room HDB## value in our stock investment in 2015!

Yes, that’s how our portfolio value fared as compared to Dec 2014 …but honey, don’t worry, market is such volatile in nature and this decrease is quite mild as compared to real crisis time e.g 1998 / 2000/ 2008 etc, which any portfolio value could be wiped out by 40 – 60%.

“But how about next year’s performance ?”

Well, we don’t have “ crystal ball “ to make any forecast, it might be better or worse . If anyone said they could give you a forecast or figure on stock’s performance next year, just listen with wide smile and walk away quietly .

Market is “random “ in short term and we should not be “Fool by such randomness “ ( read the book by Nassim N Taleb and Burton G Malkiel ). As I said, market could be worse or better next year, it could have another double digit drop in STI by end 2016!  It is anybody’s guess (read the book by Nate Silver ,, The Signal and the Noise ).

“In such volatile market, do we need to sell our share to avoid further loss in capital?”

Well , it depend on the stocks in your portfolio, any selling should be done based on changes of fundamental or underlying business of the stock and not the price. Panic selling based on price will not be good or help in your long term investment journey. We might be tempted to sell in panic ( read the book by Jason Zweig : Your Money and Your Brain and Richard H Thaler : MisBehaving ) but beware of the consequences of “market timing  as it may affect long term return of your investment .

“Well , you said investing in STI Index fund should be more stable and less risky, giving us around 8-9 %  average return p.a in the long run but why STI is down by more than 13% this year? Is Index investing safe?”

Ummm…. 8-9 % Index return (market return)  is being drawn on very long horizon (say 20-30 years). As mentioned, market is very volatile in short term, it can fluctuate from – 20 to 30% to  + 20 to 30% at any time.

Even in index investing, we should not lose faith in such investing strategy due to short term market volatility. Well, this is the “ Flaw of average “ ( Read the book by Sam L Savage : The Flaw of Average ). We tend to take the average figure by granted, eg we “anchor “ the figure of 8-9% return as benchmark of our return, but that average figure derive from long period of time .

“ What should we do if our portfolio value down by another 20%-30% next year? We may lose the value of a condominium then? “

Well , remember the concept of “ Mean reverting “ in my earlier post here in ASSI? The market moves in cycle and tend to revert to mean.

As mentioned earlier, “volatility “ should not be purely associated as risk … opportunities for profit are inseparable from RISK.

Honey, we deployed some of our cash to buy some stocks in 4^th Qtr 2015, well , price may drop further , really nobody knows but we see some value based on historically and statistically speaking . 

We often asking what will be the return of our investment in coming months or years.  But the more appropriate question to ask should be: “what will be the chances / probability of having returns in coming years.”

Allow me to quote: "Investors want certainty, and we cannot give them certainty. We can give them high probability; we cannot give them certainty" by Charles William Hamilton.

Statistically speaking, if market down by another 20-30%, chances of rebound in following year will be high if we could hold it for much longer period ( not using much leverage in stock investing ). We should deploy more cash if that really happen as what we did in 2009/2010.

Long term Market return of SP500 from 1924 till 2012:

“Do you think now is right timing for us to put our money into the market?”

Well honey, again, investing is about 3M = Market , Mind and Money Management.
 

Market :

As mentioned , market is volatile and unpredictable in short term , but we can see the trend in long term.

Market is not really cheap or deviate very far from long term mean / regression line but at the same time market is also not in very high valuation from long term mean. That’s why I said not too cheap and also not too expensive. Statistically speaking, it could down much from current level if real crisis hit . That’s why we are not deploying all our cash into the market at this point of time.

Always have “margin of safety “ and remember,   market could be irrational much longer than your think.  Buying at market PB of close to -1 SD will definitely give us some margin of safety.

90% of market movement in the short term is by psychology and only in long term , it shown an upward trend due to increasing economic value by demographic / technology innovation / productivities etc.
 

Mind :

 

Andre Kostolany, Germany's Stock Market Guru, said "Psychological create 90% market".
 

Investment is driven by "Psychology and full of Fear and Greed". Be a stoic investor and minimize our “Emo and Ego” throughout the journey of investing.

Understand the pitfalls and shortcomings of our Mind will help ( read book by James Montier : Behavioural Investing ) to know better about bias  ( Confirmation biases / Over-Confident / Anchoring / Loss Aversion / Endowment effect / Mental Accounting / Money Illusion etc ).

This might avoid common mistake of “selling in panic / buying hot stock / keeping loss stock (even knowing Fundamental has change and hoping for rebound ) / trading too much / looking at 52 weeks high / low as selling or entry price etc.
 

Money Management :

As I mentioned in earlier post, understanding our Cash Flow / expenses/ debts level  is very important even before we talk about Investment.

"Well, honey, don’t worry, we still have positive cash flow even our stock value dropped by that much. We could still save more than 60% of our “portfolio income “ after all expenses in 2015."

We live like it is before my “sabbatical leave “ in Nov 2014 , we manage our expenses by not spending on things beyond our mean. Our standard of living has remained the same.

Life is about making choices and what kind of life style we want is a choice. Everyone has expectations on the life they want to live with. We cannot really say my life style is good but it suits my expectations.

We are happy that we could go on 3 holidays and have more quality time with our kids in 2015 since my early retirement.

“Honey, some people said “dividend income “ is just from “right pocket to left pocket “ due to price change after XD, what do you think about this ?

Ummm… is quite subjective. Let’s see if I could explain better based on my own understanding.

 

Well, at least some institution or government agency do not recognize “dividend“ as income. I have seen this recently in one of the blogs post that he is facing problem is explaining “dividend“ as income in getting his domestic helper since there is no CPF contribution from employment or IRA’s statement to show that.

"Honey, we may face the same problem since these agency / financial institution do not recognize “dividend “ as income"
(hahaha.  that’s just side joke …but is true and facts.)

Well, you may notice that I use “portfolio income“ and not “dividend income“ in above mentioned. Dividend from stocks is just part of the income generating from one of the asset class. Income can come from Fix Deposit with bank / rental from housing / interest from Bond etc .

Each asset class is having their own Risk/Reward characteristic. Even cash or FD is subject to risk of value depreciation due to inflation and bond also could subject to default by issuer .

With stocks, we could see prices fluctuate second by second. We don't see this fluctuation when collecting rental from real estate which we rent out, for example. We don’t get quotation on the value of our house minute by minute (since we do not intent to sell it).

Stock prices are not static. Sometimes, stocks can be overvalue or undervalue. In an extreme example, if price stay at $1 and the company announce 10cts of dividend each year, price adjust after ex-d, will the price become –ve in Year 11? No, as people will see the value from the asset which generated the consistent cash flow and reflect in stock price eventually. It is not a zero sum game. Well, accounting is useful but sometime is not meaningful.

It would be more practical to look at the capability of the underlying business in generating the “cash flow“ to pay out the dividend or is the dividend declared from cash flow derive from “debts“ or other source of “creative accounting “.

As AK mentioned, a “Healthy cat“ is more important than “regardless white cat or black cat , if it could catch the mice“.

Lastly , look at our cash flow and spending money wisely is more important than defining the “cash flow“.

Appendix :

STE's Portfolio Income generated from share (exclude Bond / FD /CPF) in 2015 : $ 180,454

** We should  treat CPF interest as part of our total income as this will be our money eventually .

We continue to do voluntary contribution in 2015 although we don’t have contribution from employment .

Combining average interest of around 3.1 % (OA/SA/MA) is rather high since we treat it as AAA low risk bond rate .

Well, this another “margin of safety“ in our portfolio, with combine interest of more than $20+ K p.a from CPF, this would gave us another $ Mil upon reaching our withdrawal age of 55 .

 

“We will be fine, honey! You know, we are very “kia shi“ type of people that having more than 30 stocks in our Portfolio as we diversify across sector and industry.” This is to ensure that we will not have any problem in case any counter went “kapuk“ in our portfolio since it will not take more than 8% of our total value.

Well, same time we will not see our portfolio value growth much since it is very diversify and a ten bagger in our portfolio will not increase the value much. Again, it suits our investment strategy.

Lastly, wishing all A very Happy and Prosperous New Year in 2016 and hope all will have a very successful investing journey ahead! Cheers!

A big thank you to STE for this guest blog which is loaded with wisdom.

Related posts:
1. Invest for income and ignore the two Ms.
2. What to do as stock markets crash?
3. AK is showing off his CPF-OA and MA.